Income Tax Assessment Act 1936

Act No. 27 of 1936 as amended

This compilation was prepared on 11 September 2012
taking into account amendments up to Act No. 115 of 2012

Volume 3 includes: Table of Contents
   Sections 124ZM 202G

The text of any of those amendments not in force
on that date is appended in the Notes section

The operation of amendments that have been incorporated may be
affected by application provisions that are set out in the Notes section

Part IIILiability to taxation

 

Contents

Part III—Liability to taxation

Division 10E—PDFs (pooled development funds)

Subdivision A—Shares in PDFs

124ZM Treatment distributions to shareholders in PDF

124ZN Exemption of income from sale of shares in a PDF

124ZO Shares in a PDF are not trading stock

124ZQ Effect of company becoming a PDF

124ZR Effect of company ceasing to be a PDF

Subdivision B—The taxable income of PDFs

124ZS Definitions

124ZTA Taxable income in first year as PDF if PDF component is nil

124ZT SME assessable income

124ZU SME income component

124ZV Unregulated investment component

Subdivision C—Adjustments of the tax treatment of capital gains and capital losses of PDFs

124ZW Definitions

124ZX Companies to which this Subdivision applies

124ZY Classes of assessable income

124ZZ Treatment of capital gains

124ZZA Allocation of gain amounts and loss amounts to classes of assessable income

124ZZB Assessable income etc. in relation to capital gains

124ZZD No net capital loss

Division 11—Interest paid by companies on bearer debentures

126 Interest paid by a company on bearer debentures

127 Credit for tax paid by company

128 Assessments of tax

Division 11A—Dividends, interest and royalties paid to nonresidents and to certain other persons

Subdivision A—General

128AAAApplication of Division to nonshare dividends

128A Interpretation

128AA Deemed interest in respect of transfers of certain securities

128AB Certificates relating to issue price of certain securities

128AC Deemed interest in respect of hirepurchase and certain other agreements

128AD Indemnification etc. agreements in relation to bills of exchange and promissory notes

128AE Interpretation provisions relating to offshore banking units

128AF Payments through interposed entities

128B Liability to withholding tax

128C Payment of withholding tax

128D Certain income not assessable

128F Division does not apply to interest on certain publicly offered company debentures or debt interests

128FA Division does not apply to interest on certain publicly offered unit trust debentures or debt interests

128GB Division not to apply to interest payments on offshore borrowings by offshore banking units

128NA Special tax payable in respect of certain securities and agreements

128NB Special tax payable in respect of certain dealings by current and former offshore banking units

128NBACredits in respect of amounts assessed in relation to certain
financial arrangements

128P Objections

128Q Power of Commissioner to obtain information

128R Informal arrangements

Division 11B—Equity investments in smallmedium enterprises

128TG Summary of this Division

128TH When Division applies

128TI Consequences of Division applying

128TJ Acquiring a threshold interest in an SME

128TK SME or smallmedium enterprise

128TL Subsidiary and direct ownership group

Division 11C—Payments in respect of mining operations on Aboriginal land

128U Interpretation

128V Liability to mining withholding tax

128W Payment of mining withholding tax

128X Power of Commissioner to obtain information

Division 12—Oversea ships

129 Taxable income of shipowner or charterer

130 Master or agent to make return

131 Determination by Commissioner

132 Assessment of tax

133 Master liable to pay

134 Notice of assessment

135 Clearance of ship

135A Freights payable under certain agreements

Division 13—International agreements and determination of source of certain income

136AA Interpretation

136AB Operation of Division

136AC International agreements

136AD Arm’s length consideration deemed to be received or given

136AE Determination of source of income etc.

136AF Consequential adjustments to assessable income and allowable deductions

Division 15—Insurance with nonresidents

141 Interpretation

142 Income derived by nonresident insurer

143 Taxable income of nonresident insurer

144 Liability of agents of insurer

145 Deduction of premiums

146 Exporter to furnish information

147 Rate of tax in special circumstances

148 Reinsurance with nonresidents

Division 16—Averaging of incomes

149 Average income

149A Capital gains, abnormal income and certain death benefits to be disregarded

150 First average year

151 First application of Division in relation to a taxpayer

152 Taxpayer not in receipt of assessable income

153 Taxpayer with no taxable income

154 Excess of allowable deductions

155 Permanent reduction of income

156 Rebate of tax for, or complementary tax payable by, certain primary producers

157 Application of Division to primary producers

158 Application of Division

158A Election that Division not apply

Division 16D—Certain arrangements relating to the use of property

159GE Interpretation

159GEA Division applies to certain State/Territory bodies

159GF Residual amounts

159GG Qualifying arrangements

159GH Application of Division in relation to property

159GJ Effect of application of Division on certain deductions etc.

159GK Effect of application of Division on assessability of arrangement payments

159GL Special provision relating to Division 10C or 10D property

159GM Special provision where cost of plant etc. is also eligible capital expenditure

159GN Effect of use of property under qualifying arrangement for producing assessable income

159GO Special provisions relating to partnerships

Division 16E—Accruals assessability etc. in respect of certain security payments

159GP Interpretation

159GQ Tax treatment of holder of qualifying security

159GQAAccrual period

159GQBAccrual amount

159GQCImplicit interest rate for fixed return security

159GQDImplicit interest rate for variable return security

159GR Consequences of actual payments

159GS Balancing adjustments on transfer of qualifying security

159GT Tax treatment of issuer of a qualifying security

159GU Effect of Division on certain transfer profits and losses

159GV Consequence of variation of terms of security

159GW Effect of Division in relation to nonresidents

159GX Effect of Division where certain payments not assessable

159GY Effect of Division where qualifying security is trading stock

159GZ Stripped securities

Division 16J—Effect of cancellation of subsidiary’s shares in holding company

159GZZZCInterpretation—general

159GZZZDMeaning of eligible entity, eligible interest and eligible
proportion

159GZZZEShare cancellations to which this Division applies

159GZZZFEffect on subsidiary of share cancellations to which this
Division applies

159GZZZGPrecancellation disposals of eligible interests

159GZZZHPostcancellation disposals of eligible interests etc.

159GZZZIAdditional application of sections 159GZZZG and
159GZZZH to associates

Division 16K—Effect of buybacks of shares

Subdivision AA—Application of Division to nonshare equity interests

159GZZZIAApplication of Division to nonshare dividends

Subdivision A—Interpretation

159GZZZJInterpretation

159GZZZKExplanation of terms

159GZZZLSpecial buybacks not made in ordinary course of trading
on a stock exchange

159GZZZMPurchase price in respect of buyback

Subdivision B—Company buyingback shares

159GZZZNBuyback and cancellation disregarded for certain purposes

Subdivision C—Offmarket purchases

159GZZZPPart of offmarket purchase price is a dividend

159GZZZQConsideration in respect of offmarket purchase

Subdivision D—Onmarket purchases

159GZZZRNo part of onmarket purchase price is a dividend

159GZZZSConsideration in respect of onmarket purchase

Division 16L—Taxexempt infrastructure borrowings

159GZZZZDInterpretation

159GZZZZEInfrastructure borrowings to be nonassessable and
nondeductible

159GZZZZFTax exemption to be disregarded for certain purposes

159GZZZZGRebate election

159GZZZZHTax payable where infrastructure borrowing certificate
cancelled

Division 17—Rebates

Subdivision A—Concessional rebates

159H Application

159HA Indexation for the purposes of sections 159J, 159L and 159P

159J Rebates for dependants

159JA Rebates for dependants—reduction because of certain other benefits

159K Sole parent rebate

159L Rebates for housekeepers

159LA Rebates for housekeepers—reduction because of certain other benefits

159M Double concessional rebates

159N Rebate for certain lowincome taxpayers

159P Rebate for medical expenses

Subdivision AB—Lump sum payments in arrears

159ZR Interpretation

159ZRA Eligibility for rebate

159ZRB Calculation of rebate

159ZRC Notional tax amount for recent accrual years

159ZRD Notional tax amount for distant accrual years

Subdivision B—Miscellaneous

160AAAATax rebate for low income aged persons and pensioners

160AAABTax rebate for low income aged persons and
pensioners—trustees assessed under section 98

160AAARebate in respect of certain benefits etc.

160AABRebate in respect of amounts assessable under section 26AH

160AD Maximum amount of rebates

160ADAMost tax offsets under the 1997 Assessment Act are treated
as rebates

Part IIIB—Australian branches of foreign banks

Division 1—Preliminary

160ZZVAObject

160ZZVBApplication

160ZZV Definitions

160ZZW Certain provisions to apply as if Australian branch of foreign bank were a separate legal entity

Division 2—Provisions relating to income tax

160ZZX Income of branch to have Australian source

160ZZZ Notional borrowing by branch from bank

160ZZZANotional payment of interest by branch to bank

160ZZZCOffshore banking units

160ZZZENotional derivative transactions between branch and bank

160ZZZFNotional foreign exchange transactions between branch and
bank

160ZZZGLosses

160ZZZHNet capital losses

160ZZZI Certain transactions to be disregarded

Division 3—Provisions relating to withholding tax

160ZZZJWithholding tax on interest paid by branch to bank

Division 4—Extension of Part to Australian branches of foreign financial entities

160ZZZKTreatment like Australian branches of foreign banks

Part IV—Returns and assessments

161 Annual returns

161A Form and content of returns

161AA Contents of returns of full selfassessment taxpayers

161G Tax agent to give taxpayer copy of notice of assessment

162 Further returns and information

163 Special returns

163A Late lodgement penalty—relevant entities, instalment taxpayers and full selfassessment taxpayers

163AA General interest charge on unpaid penalty

163B Late lodgment of returns by persons other than relevant entities, instalment taxpayers and full selfassessment taxpayers

164 Returns deemed to be duly made

166 Assessment

166A Deemed assessment

167 Default assessment

168 Special assessment

169 Assessments on all persons liable to tax

169AA Consolidated assessments

169A Reliance by Commissioner on returns and statements

170 Amendment of assessments

170A Amendment of assessments—interaction with other Acts

170C Power of Commissioner to reduce amount of tax payable in certain cases

171 Where no notice of assessment served

171A Limited period to make assessments for nil liability returns for the 200304 year of income or earlier

172 Refunds of amounts overpaid

173 Amended assessment to be an assessment

174 Notice of assessment

175 Validity of assessment

175A Objections against assessments

176 Judicial notice of signature

177 Evidence

Part IVA—Schemes to reduce income tax

177A Interpretation

177B Operation of Part

177C Tax benefits

177CA Withholding tax avoidance

177D Schemes to which Part applies

177E Stripping of company profits

177EA Creation of franking debit or cancellation of franking credits

177EB Cancellation of franking credits—consolidated groups

177F Cancellation of tax benefits etc.

177G Amendment of assessments

Part VA—Tax file numbers

Division 1—Preliminary

202 Objects of this Part

202A Interpretation

202AA Definition of eligible PAYG payment

Division 2—Issuing of tax file numbers

202B Application for tax file number

202BA Issuing of tax file numbers

202BB Current tax file number

202BC Deemed refusal by Commissioner

202BD Interim notices

202BE Cancellation of tax file numbers

202BF Alteration of tax file numbers

Division 3—Quotation of tax file numbers by recipients of eligible PAYG payments

202C TFN declarations by recipients of eligible PAYG payments

202CA Operation of TFN declaration

202CB Quotation of tax file number in TFN declaration

202CC Making a replacement TFN declaration in place of an ineffective declaration

202CD Sending of TFN declaration to Commissioner

202CE Effect of incorrect quotation of tax file number

202CF Payer must notify Commissioner if no TFN declaration by recipient

Division 4—Quotation of tax file numbers in connection with certain investments

202D Explanation of terms: investment, investor, investment body

202DA Phasingin period for Division

202DB Quotation of tax file numbers in connection with investments

202DC Method of quoting tax file number

202DD Investor excused from quoting tax file number in certain circumstances

202DDBQuotation of tax file number in connection with indirectly
held investment

202DE Securities dealer to inform the investment body of tax file number

202DF Effect of incorrect quotation of tax file number

202DG Investments held jointly

202DH Tax file number quoted for superannuation or surcharge purposes taken to be quoted for purposes of the taxation of eligible termination payments

202DHATax file number quoted for Division 3 purposes taken to have
been quoted for superannuation purposes

202DI Tax file number quoted for RSA purposes taken to be quoted for purposes of the taxation of superannuation benefits

202DJ Tax file number quoted for purposes of taxation of superannuation benefits taken to be quoted for surcharge purposes

Division 4A—Quotation of tax file numbers in connection with farm management deposits

202DL Quotation of tax file number

202DM Effect of incorrect quotation of tax file number

Division 4B—Quotation of tax file numbers in connection with certain closely held trusts

202DN Application of Division

202DO Quotation of tax file numbers

202DP Trustee must report quoted tax file numbers

202DR Effect of incorrect quotation of tax file number

Division 5—Exemptions

202EA Persons receiving certain pensions etc.—employment

202EB Persons receiving certain pensions etc.—investments

202EC Entities not required to lodge income tax returns

202EE Nonresidents

202EF Territory residents etc.

202EG Manner of completing declarations

202EH Declarations under this Division to be retained in certain circumstances

Division 6—Review of decisions

202F Review of decisions

202FA  Statements to accompany notification of decisions

Division 7—Manner of providing information

202G Transmission of information in accordance with specifications

Division 10EPDFs (pooled development funds)

Subdivision AShares in PDFs

124ZM  Treatment distributions to shareholders in PDF

Unfranked part of distribution exempt from income tax

 (1) If a company makes a distribution to a shareholder at a time when the company is a PDF, the unfranked part of the distribution is exempt from income tax.

Rest of section deals with franked part

 (2) The rest of this section applies to the franked part of the distribution.

Usual case

 (3) Subsection (4) applies if the assessable income of a year of income of a taxpayer who or that is:

 (a) a company or a natural person (other than a company or natural person in the capacity of a trustee); or

 (b) a corporate unit trust in relation to that year of income; or

 (c) a public trading trust in relation to that year of income; or

 (d) a complying superannuation fund, a noncomplying superannuation fund, a complying approved deposit fund, a noncomplying approved deposit fund or a pooled superannuation trust in relation to that year of income; or

 (da) an FHSA trust;

would (apart from subsection (4)) include:

 (e) the franked part of the distribution; or

 (f) any of the franked part of the distribution that flows indirectly to the taxpayer.

This subsection does not apply to cases dealt with in subsections (5) and (6).

 (4) Subject to subsection (7), the following is exempt income of the taxpayer:

 (a) if paragraph (3)(e) applies—the franked part;

 (b) if paragraph (3)(f) applies—so much of the franked part of the distribution as flows indirectly to the taxpayer.

Taxpayers who qualify for venture capital franking tax offset

 (5) If a taxpayer (other than a life assurance company) is entitled to a tax offset in relation to the distribution under section 210170 of the Income Tax Assessment Act 1997, then:

 (a) so much of the franked part of the distribution as equals the part of the distribution that is franked with a venture capital credit is exempt income of the taxpayer; and

 (b) if the franked part exceeds the amount so exempt—the excess is, subject to subsection (7), exempt income of the taxpayer.

 (6) If a life assurance company is entitled to a tax offset in relation to the distribution under section 210170 of the Income Tax Assessment Act 1997, then:

 (a) so much of the franked part of the distribution as equals the amount worked out using the following formula is exempt income of the life assurance company:

  where:

  complying superannuation/FHSA class of taxable income is the life assurance company’s complying superannuation/FHSA class of taxable income, within the meaning of subsection 9951(1) of the Income Tax Assessment Act 1997, for the year of income in which the distribution is made.

  venture capital franked part is the part of the distribution that is franked with a venture capital credit.

  total income is the life assurance company’s assessable income for the year of income in which the distribution is made; and

 (b) if the franked part exceeds the amount so exempt—the excess is, subject to subsection (7), exempt income of the life assurance company.

No exemption if return prepared on basis that amount assessable

 (7) Subsection (4) and paragraphs (5)(b) and (6)(b) do not exempt, and are taken never to have exempted, an amount if the taxpayer’s return of income of the year of income is prepared on the basis that the amount is included in the taxpayer’s assessable income of that year.

Where partner entitled to deduction for amount flowing indirectly

 (8) If:

 (a) any of the franked part of the distribution flows indirectly to a taxpayer who is a partner in a partnership; and

 (b) apart from this subsection, the amount that flows indirectly would be allowable as a deduction from the taxpayer’s assessable income of a year of income; and

 (c) the taxpayer is of a kind mentioned in any of paragraphs (3)(a) to (d);

the amount that flows indirectly is not allowable as a deduction from that assessable income.

 (9) Subsection (8) does not prevent, and is taken never to have prevented, an amount from being allowable as a deduction if the taxpayer’s return of income of the year of income is prepared on the basis that the amount is so allowable.

Where trustee assessed on amount flowing indirectly

 (10) If:

 (a) any of the franked part of the distribution flows indirectly to the trustee of a trust estate; and

 (b) apart from this subsection, the trustee would be liable under section 98, 99 or 99A to be assessed and pay tax on the amount that flows indirectly;

the trustee is not liable under that section to be assessed and to pay tax on the amount that flows indirectly.

 (11) Subsection (10) does not prevent, and is taken never to have prevented, the trustee from being liable under that section to be assessed and to pay tax on an amount if the trustee elects to be so liable.

 (12) An election must be made in the trustee’s return of income of the trust estate for the year of income concerned.

Interpretation

 (13) In this section:

flows indirectly has the meaning given by subsection 9951(1) of the Income Tax Assessment Act 1997.

part of a distribution that is franked with a venture capital credit has the meaning given by subsection 9951(1) of the Income Tax Assessment Act 1997.

124ZN  Exemption of income from sale of shares in a PDF

  Income derived by a taxpayer from selling shares in a company is exempt from income tax if the company is a PDF at the time of the sale.

Note: Any capital gain or capital loss from a disposal of shares in a PDF is disregarded: see section 11813 of the Income Tax Assessment Act 1997.

124ZO  Shares in a PDF are not trading stock

  Shares in a PDF are not trading stock for the purposes of this Act.

124ZQ  Effect of company becoming a PDF

 (1) This section applies to shares in a company that a taxpayer holds when the company becomes a PDF.

 (2) In determining for the purposes of this Act whether an amount is or was allowable as a deduction to the taxpayer in respect of acquiring the shares, the shares are taken to have been shares in a PDF throughout the period beginning immediately before the taxpayer acquired them and ending when the company became a PDF.

 (3) For the purposes of this Act, the shares are taken to have been trading stock of the taxpayer at no time during that period.

 (4) Section 170 does not prevent an assessment from being amended to give effect to this section.

124ZR  Effect of company ceasing to be a PDF

 (1) This section applies to shares in a company that a taxpayer holds when the company ceases to be a PDF.

 (2) For the purposes of this Act (except Parts 31 and 33 (about CGT) of the Income Tax Assessment Act 1997), the taxpayer is taken:

 (a) to have sold the shares immediately before the company ceased to be a PDF; and

 (b) to have rebought the shares immediately after the company so ceased;

for a consideration equal to the market value of the shares immediately after the company so ceased.

 (3) Parts 31 and 33 (about CGT) of the Income Tax Assessment Act 1997 apply as if the taxpayer:

 (a) had disposed of the CGT assets constituted by the shares, and had done so immediately before the company ceased to be a PDF; and

 (b) had reacquired those assets immediately afterwards;

for an amount equal to the shares’ market value immediately after the company so ceased.

Subdivision BThe taxable income of PDFs

124ZS  Definitions

  In this Subdivision:

nonCGT assessable income means an amount included in assessable income otherwise than under Part 31 or 33 (about CGT) of the Income Tax Assessment Act 1997 or Subdivision C of this Division.

SME investment means an investment other than an unregulated investment.

Note: SME stands for small and medium enterprises.

unregulated investment has the same meaning as in the Pooled Development Funds Act 1992.

124ZTA  Taxable income in first year as PDF if PDF component is nil

 (1) This section applies if:

 (a) a company becomes a PDF during a year of income and is still a PDF at the end of the year of income; and

 (b) the PDF component for the year of income is a nil amount; and

 (c) the year of income is the 199798 year of income or a later one.

 (2) The company’s taxable income of the year of income is the amount that, if the period (the notional year) beginning at the start of the year of income and ending immediately before the company becomes a PDF were a year of income of the company, would be the company’s taxable income of the notional year.

124ZT  SME assessable income

SME assessable income

 (1) A company’s SME assessable income of a year of income is the sum of:

 (a) so much of the company’s nonCGT assessable income of the year of income as was derived:

 (i) from, or from the disposal of, an SME investment of the company; and

 (ii) at a time when the company was a PDF; and

 (b) any assessable income allocated to the company’s SME assessable income under section 124ZZB.

Note: Section 124ZZB deals with capital gains etc.

When assessable income derived

 (2) For the purposes of paragraph (1)(a), if an amount is derived by a company during, but not at a particular time during, a year of income, the amount is taken to have been derived by the company on the last day of the year of income.

124ZU  SME income component

Fullyear PDFs

 (1) The SME income component of a year of income of a company that is a PDF throughout the year of income is so much of the company’s taxable income of the year of income as does not exceed the amount (if any) remaining after deducting from the company’s SME assessable income of the year of income any deductions allowable to the company in relation to the year of income.

Partyear PDFs

 (2) The SME income component of a year of income of a company that becomes a PDF during the year of income and is still a PDF at the end of the year of income is so much of the company’s adjusted taxable income of the year of income as does not exceed the amount (if any) remaining after deducting from the company’s SME assessable income of the year of income any deductions where both of the following conditions are satisfied:

 (a) the deductions were allowable to the company in relation to the year of income;

 (b) the deductions were taken into account in working out the company’s PDF component of the year of income.

For this purpose, adjusted taxable income means so much of the company’s taxable income of the year of income as does not exceed its PDF component of the year of income.

124ZV  Unregulated investment component

Fullyear PDFs

 (1) The unregulated investment component of a year of income of a company that is a PDF throughout the year of income is the amount (if any) remaining after deducting from the company’s taxable income of the year of income the company’s SME income component of the year of income.

Partyear PDFs

 (2) The unregulated investment component of a year of income of a company that becomes a PDF during the year of income and is still a PDF at the end of the year of income is the amount (if any) remaining after deducting from the company’s adjusted taxable income of the year of income the company’s SME income component of the year of income. For this purpose, adjusted taxable income means so much of the company’s taxable income of the year of income as does not exceed its PDF component of the year of income.

Subdivision CAdjustments of the tax treatment of capital gains and capital losses of PDFs

124ZW  Definitions

  In this Subdivision:

accumulated net capital loss for a year of income (the loss year) means the amount (if any) by which the total of:

 (a) the total of the overall capital losses for all classes of assessable income for the loss year; and

 (b) any accumulated net capital loss for the last year of income before the loss year;

exceeds:

 (c) the total of the overall capital gains for all classes of assessable income for the loss year (before section 116GB is applied).

class, in relation to assessable income, means a class specified in section 124ZY.

company does not include a company in a capacity of trustee.

nonCGT assessable income means an amount included in assessable income otherwise than under Part 31 or 33 (about CGT) of the Income Tax Assessment Act 1997 or this Subdivision.

ordinary capital gain for a CGT event means any capital gain that would (apart from this Subdivision) arise from the event.

ordinary capital loss for a CGT event means any capital loss that would (apart from this Subdivision) arise from the event.

overall capital gain for a class of assessable income means:

 (a) the amount by which the total ordinary capital gain for that class exceeds the total ordinary capital loss for that class; or

 (b) if an amount has been applied under subsection 124ZZB(2) to reduce an overall capital gain previously worked out under this definition—that gain as so reduced.

overall capital loss for a class of assessable income means the amount by which the total ordinary capital gain for that class is less than the total ordinary capital loss for that class.

residual overall capital gain means so much of an overall capital gain as remains after applying subsection 124ZZB(2).

SME assessable income has the meaning given by Subdivision B.

SME investment means an investment other than an unregulated investment.

total ordinary capital gain for a class means the total of so much of any ordinary capital gains as has been allocated to that class under section 124ZZA.

total ordinary capital loss for a class means the total of so much of any ordinary capital losses as has been allocated to that class under section 124ZZA.

unregulated investment has the same meaning as in the Pooled Development Funds Act 1992.

124ZX  Companies to which this Subdivision applies

  This Subdivision applies to a company in relation to a year of income if:

 (a) the company is a PDF throughout the year of income; or

 (b) the company becomes a PDF during the year of income and is still a PDF at the end of the year of income.

124ZY  Classes of assessable income

Classes

 (1) The classes of assessable income of the company are as follows:

 (a) SME assessable income (see section 124ZT);

 (b) other assessable income (see subsection(2)).

Other assessable income

 (2) The company’s other assessable income of the year of income is the sum of:

 (a) so much of the company’s nonCGT assessable income of the year of income as is not included in the company’s SME assessable income of the year of income; and

 (b) any assessable income allocated to the company’s other assessable income under section 124ZZB.

124ZZ  Treatment of capital gains

  Nothing is to be included in the company’s assessable income of the year of income under section 1025 of the Income Tax Assessment Act 1997 (about net capital gains).

124ZZA  Allocation of gain amounts and loss amounts to classes of assessable income

Disposals of SME investments

 (1) If:

 (a) there is an ordinary capital gain amount, or an ordinary capital loss amount, in respect of a disposal of an SME investment of the company; and

 (b) the company was a PDF at the time of the disposal;

the ordinary capital gain amount or ordinary capital loss amount, as the case may be, is taken into account in determining the overall capital gain or overall capital loss for the class known as SME assessable income.

Disposals of assets other than SME investments

 (2) If:

 (a) there is an ordinary capital gain amount, or an ordinary capital loss amount, in respect of a disposal of an asset of the company; and

 (b) subsection (1) does not apply to the disposal;

the ordinary capital gain amount or the ordinary capital loss amount, as the case may be, is taken into account in determining the overall capital gain or overall capital loss for the class known as other assessable income.

124ZZB  Assessable income etc. in relation to capital gains

 (1) The assessable income of each class includes the amount (if any) that is left over after the overall capital gain for that class has been reduced in accordance with this section.

 (2) If there is an overall capital loss for a particular class of assessable income, the loss is to be applied in reduction of overall capital gains for the remaining class.

 (3) Any accumulated net capital loss for the immediately preceding year of income is to be applied in reduction of residual overall capital gains for the classes of assessable income in the following order:

 (a) SME assessable income;

 (b) other assessable income.

124ZZD  No net capital loss

  The company does not make a net capital loss for the year of income, despite section 10210 of the Income Tax Assessment Act 1997.


Division 11Interest paid by companies on bearer debentures

126  Interest paid by a company on bearer debentures

 (1) If:

 (a) a company pays or credits an amount of interest in respect of a debenture payable to bearer; and

 (b) the interest is not, to any extent, subject to withholding tax under Division 11A; and

 (c) neither of sections 128F (to the extent it applies to nonresidents who are not engaged in carrying on a business in Australia at or through a permanent establishment in Australia) and 128GB applies to the interest; and

 (d) the interest is not interest that, because of section 159GZZZZE (which deals with infrastructure borrowings), is not included in assessable income; and

 (e) the company does not give the Commissioner the name and address of the holder of the debenture;

the company is liable to pay income tax, as imposed by the Income Tax (Bearer Debentures) Act 1971, on the amount paid or credited, or, if the company makes a deduction under subsection (2), the amount that otherwise would have been paid or credited.

 (1A) Subsection (1) does not affect any other liability of the company to pay income tax.

 (2) The company may deduct and retain for its own use from an amount payable to a person in respect of which the company is liable to pay tax in accordance with subsection (1) an amount equal to that tax.

 (3) Where the Commissioner is satisfied that that person is not liable to furnish a return, the Commissioner must refund to that person the amount of tax paid by the company in respect of his or her debentures.

127  Credit for tax paid by company

 (1) Where the company pays tax under this Division on any interest, and that interest is included in the assessment of the person to whom it was paid or credited, the proportionate amount of tax paid by the company in respect of the interest shall be deducted from the total tax payable by that person.

128  Assessments of tax

  An assessment of tax payable in accordance with this Division by a company may be an assessment of the amount of tax so payable upon interest in respect of a number of debentures, whether held by the one holder or not.


Division 11ADividends, interest and royalties paid to nonresidents and to certain other persons

Subdivision AGeneral

128AAA  Application of Division to nonshare dividends

 (1) This Division:

 (a) applies to a nonshare equity interest in the same way as it applies to a share; and

 (b) applies to an equity holder in the same way as it applies to a shareholder; and

 (c) applies to a nonshare dividend in the same way as it applies to a dividend.

 (2) Subsection (1) does not apply to:

 (a) section 128AE; and

 (b) section 128F; and

 (ba) section 128FA.

128A  Interpretation

 (1) In this Division, unless the contrary intention appears:

ADI means a body corporate that is an ADI (authorised deposittaking institution) for the purposes of the Banking Act 1959.

dividend:

 (a) includes part of a dividend; and

 (b) (except when used in paragraph (d) of the definition of interest in subsection (1AB)) does not include a dividend paid in respect of a nonequity share.

enterprise means a business or other industrial or commercial undertaking.

entity means:

 (a) the Commonwealth, a State or an authority of the Commonwealth or of a State;

 (b) a natural person;

 (c) a company;

 (d) the partners in a partnership, in their capacity as partners;

 (e) the persons carrying on a joint venture, in their capacity as such persons; or

 (f) the trustees of a trust, in their capacity as such trustees.

foreign bank means a nonresident company that carries on a banking business.

joint venture means an enterprise carried on by 2 or more persons in common otherwise than as partners.

nonADI financial institution means a corporation that:

 (a) is a registered entity within the meaning of the Financial Sector (Collection of Data) Act 2001; and

 (b) is included in Category D (Money Market Corporation) in a list kept under section 11 of that Act; and

 (c) carries on a general business of providing finance (within the meaning of that Act) on a commercial basis.

nostro account means an account that:

 (a) an ADI or nonADI financial institution holds with a foreign bank and maintains for the sole purpose of settling international transactions; and

 (b) operates on the basis that:

 (i) amounts deposited in the account are held in the account for no more than 10 days; and

 (ii) amounts advanced by way of an overdraft on the account are repaid within 10 days.

 (1AA) In this Division and in an Act imposing withholding tax:

income includes a royalty and a dividend.

 (1AB) For the purposes of this Division:

interest includes an amount, other than an amount referred to in subsection 26C(1):

 (a) that is in the nature of interest; or

 (b) to the extent that it could reasonably be regarded as having been converted into a form that is in substitution for interest; or

 (c) to the extent that it could reasonably be regarded as having been received in exchange for interest in connection with a washing arrangement; or

 (d) that is a dividend paid in respect of a nonequity share; or

 (e) if regulations under the Income Tax Assessment Act 1997 are made having the effect that instruments known as upper tier 2 capital instruments, or a class of instruments of that kind, are debt interests—that is paid on such a debt interest and is not a return of an investment;

but does not include an amount to the extent to which it is a return on an equity interest in a company.

washing arrangement means an arrangement under which the title to a security is transferred to a resident shortly before an interest payment is made where the sole or dominant purpose of the arrangement is to reduce the amount of withholding tax payable by a person.

 (1AC) An example of an amount in the nature of interest is an amount representing a discount on a security.

 (1AD) An example of an amount in substitution for interest is a lump sum payment made instead of payments of interest.

 (1AE) For the purposes of this Division, if a lender assigns a loan, or the right to interest under a loan, any payment from the borrower to the assignee that represents an amount that would have been interest if the assignment had not taken place is taken to be a payment of interest.

 (1AF) For the purposes of this Division, if a person acquires a security, or the right to interest under a security, any payment from the issuer of the security to that person that represents an amount that would have been interest if the acquisition had not taken place is taken to be a payment of interest.

 (1A) Subject to subsection (1B), for the purposes of this subsection and sections 128AA, 128AB, 128AD, 128C, 128NA and 128NBA:

 (a) a reference to the reduced issue price of a security that has been partially redeemed on one or more occasions is a reference to the issue price of the security reduced by the amount of the partial redemption or the sum of the amounts of the partial redemptions, as the case may be;

 (b) expressions used in this subsection or those sections that are also used in Division 16E have the same respective meanings as in that Division; and

 (c) sections 159GV (other than subsection 159GV(2)) and 159GZ apply as if references in those sections to “this Division” were references to “subsection 128A(1A) and sections 128AA, 128AB, 128AD, 128C, 128NA and 128NBA”.

 (1B) Subsection (1A) applies as if:

 (a) paragraph (c) of the definition of qualifying security in subsection 159GP(1) were omitted; and

 (b) paragraph (a) of the definition of security in that subsection included a reference to debt interests.

 (2) For the purposes of this Division, interest or a royalty shall be deemed to have been paid by a person to another person although it is not actually paid over to the other person but is reinvested, accumulated, capitalized, carried to any reserve, sinking fund or insurance fund however designated, or otherwise dealt with on behalf of the other person or as the other person directs.

 (3) For the purposes of this Division, a beneficiary who is presently entitled to a dividend, to interest or to a royalty included in the income of a trust estate shall be deemed to have derived income consisting of that dividend, interest or royalty at the time when he or she became so entitled.

 (4) In section 260, income tax or tax includes withholding tax.

 (5) For the purposes of this Division:

 (a) the borrowing of moneys by a company by means of the issue of a number of debentures or debt interests in one borrowing operation shall be deemed to be the raising of a loan;

 (b) subject to paragraph (a), each receipt of moneys by a borrower under a contract under which moneys are to be, or may be, advanced by way of loan shall be deemed to be the raising of a loan; and

 (c) the moneys received by the raising of a loan, less the expenses of borrowing, shall be deemed to be the loan moneys in respect of the loan.

 (6) A reference in this Division to beneficial interests in relation to an entity shall be read:

 (a) in the case of an entity being a company or the partners in a partnership—as a reference to beneficial interests in respect of the capital of, and in respect of any profits or income of, the company or partnership;

 (b) in the case of an entity being persons carrying on a joint venture—as a reference to beneficial interests in respect of the enterprise; and

 (c) in the case of an entity being the trustees of a trust—as a reference to beneficial interests under the trust.

 (7) A reference in this Division to the use of moneys for the purposes of an enterprise shall be read as not including use of those moneys in the course of carrying on an enterprise:

 (a) by way of providing capital for another enterprise; or

 (b) by way of the making of loans.

 (9) For the purposes of this Division:

 (a) a reference to particular loan moneys (including the reference in paragraph (b)) includes a reference to moneys that, in the opinion of the Commissioner, represent those loan moneys; and

 (b) without limiting the generality of paragraph (a):

 (i) moneys received by way of repayment of a loan made out of particular loan moneys; and

 (ii) moneys received in respect of shares in the capital of a company, being shares purchased or subscribed for by the expenditure of particular loan moneys, upon a sale of the shares, a return of capital by the company or liquidation of the company;

  shall be deemed to represent those loan moneys.

 (10) For the purposes of this Division, the trustee of a provident, benefit, superannuation or retirement fund is a nonresident at a particular time if, and only if, the fund is a foreign superannuation fund at that time.

 (11) If, apart from this subsection, there is, in relation to a fund, no person who is a trustee of the fund for the purposes of this Division, the person, or each of the persons, who manages the fund is taken, for the purposes of this Division, to be the trustee, or a trustee, as the case requires, of the fund.

128AA  Deemed interest in respect of transfers of certain securities

 (1) Where:

 (a) a person transfers a qualifying security; and

 (b) the transfer price of the security exceeds the issue price or, where the security has been partially redeemed, the reduced issue price of the security;

so much of the transfer price as equals the excess referred to in paragraph (b) shall, for the purposes of this Division, be deemed to be income that consists of interest.

 (2) For the purposes of references to the transfer price, issue price or reduced issue price of a qualifying security in subsection (1), any application of subsection 159GP(2) shall be disregarded.

128AB  Certificates relating to issue price of certain securities

 (1) Where:

 (a) a qualifying security is or was transferred either before or after the commencement of this section; and

 (b) at the time of transfer either:

 (i) the transferor is or was a resident; or

 (ii) the transferor is or was a nonresident and the transfer price is or was derived from a source in Australia;

the transferee may at any time after the transfer (including a time after the transferee ceases to be the holder of the security) apply to the Commissioner for the issue of a certificate under this section.

 (2) An application under subsection (1) shall be in accordance with the form required by the Commissioner, by notice in writing published in the Gazette, for the purposes of applications under that subsection.

 (3) Where the Commissioner is satisfied that the requirements of paragraph (1)(b) are satisfied in relation to the transfer of the qualifying security to which an application under subsection (1) relates and that the security was transferred on a particular date and for a particular consideration to the applicant, the Commissioner shall issue to the applicant a certificate that:

 (a) is expressed to be issued under this section;

 (b) identifies the security to which it relates;

 (c) specifies that date as the date of transfer;

 (d) specifies that consideration, or, where subsection 159GP(2) applies, the amount that is taken under that subsection to be the consideration for the transfer, as the transfer price; and

 (e) specifies the name of the applicant as the transferee.

 (4) Where the Commissioner issues a certificate under this section in relation to a qualifying security that has been transferred to a person, the following provisions have effect:

 (a) for the purposes of the application of this Division in relation to the first subsequent transfer (if any) of the qualifying security by the person:

 (i) the amount specified in the certificate shall be taken to be the issue price of the security; and

 (ii) where the security was partially redeemed before the transfer to the person—any such partial redemption shall be taken not to have occurred;

 (b) if the security is redeemed or partially redeemed without having been subsequently transferred by the person—in determining for the purposes of the application of this Division the extent (if any) to which the redemption payment comprises an amount that is interest by reason only of the definition of interest in subsection 128A(1AB):

 (i) the amount specified in the certificate as the transfer price shall be taken to be the issue price of the security; and

 (ii) where the security was partially redeemed before the transfer to the person—any such partial redemption shall be taken not to have occurred.

 (5) If the Commissioner refuses an application under subsection (1), the Commissioner shall serve on the applicant, by post or otherwise, notice in writing that the application has been refused.

128AC  Deemed interest in respect of hirepurchase and certain other agreements

 (1) In this section:

agreement means any agreement, arrangement or understanding, whether formal or informal, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings.

attributable agreement payment, in relation to a relevant agreement, means so much of any payment made or liable to be made under the agreement as represents consideration for the use, sale or disposal of the relevant agreement property.

carry forward interest, in relation to an attributable agreement payment in relation to a relevant agreement, means so much (if any) of the notional interest in relation to the payment as exceeds the amount of the payment.

eligible value, in relation to the relevant agreement property in relation to a relevant agreement, means the market value of the property at the time at which the agreement commences or commenced to apply in relation to the property.

formula interest, in relation to an attributable agreement payment in relation to a relevant agreement, means the amount ascertained in accordance with the formula , where:

A is the total interest in relation to the relevant agreements.

B is the total number of attributable agreement payments liable to be made under the relevant agreements; and

C is the number that is B, reduced by the number of attributable agreement payments made under the relevant agreement before the attributable agreement payment concerned.

notional interest, in relation to an attributable agreement payment in relation to a relevant agreement, means the sum of the formula interest (if any) in relation to the payment and the carry forward interest (if any) in relation to the immediately preceding attributable agreement payment in relation to the relevant agreement.

relevant agreement means an agreement entered into after 16 December 1984, being:

 (a) a hirepurchase agreement; or

 (b) a lease or any other agreement relating to the use by a person of property owned by another person, being a lease or agreement under which:

 (i) the lessee or person using the property is entitled to purchase or require the transfer of the lease property or property subject to the agreement on the termination or expiration of the lease or agreement; or

 (ii) the lease term or term of the agreement is for all, or substantially all, of the effective life of the lease property or property subject to the agreement.

relevant agreement property, in relation to a relevant agreement, means:

 (a) in the case of a hirepurchase agreement—the property that is the subject of the agreement; and

 (b) in any other case—the property in relation to which subparagraph (b)(i) or (ii) of the definition of relevant agreement applies.

total interest, in relation to a relevant agreement, means the sum of all of the attributable agreement payments liable to be made under the relevant agreement, reduced by the eligible value of the relevant agreement property.

 (2) Where an agreement (including a hirepurchase agreement and a lease) relates to the use by a person of 2 or more items of property owned by another person, this section applies as if, instead of the single agreement, there were separate agreements relating to the use of each of the items of property having such of the terms of the firstmentioned agreement as are relevant.

 (3) Where a variation is or was made in the terms of, or liability to make payments under, a relevant agreement, then, for the purposes of the application of this section:

 (a) the relevant agreement shall be taken to be, or to have been, terminated at the time at which the variation has effect; and

 (b) a new relevant agreement shall be taken to be, or to have been, entered into at the time at which the variation has effect and on the terms of the firstmentioned relevant agreement as so varied.

 (4) Where any right or option under an agreement to extend the term of, or otherwise vary the effect of, the agreement is or was exercised, then, for the purposes of this section, the exercise of that right or option shall be taken to be a variation of the terms of the agreement to provide for the extension or other effect.

 (5) Where an attributable agreement payment in relation to a relevant agreement is made, so much of the attributable agreement payment as does not exceed the notional interest in relation to the payment shall, for the purposes of this Division, be deemed to be income that consists of interest.

 (6) Where:

 (a) a relevant agreement is entered into after the commencement of this section; and

 (b) at the time at which the relevant agreement is entered into, the total interest in relation to the relevant agreement exceeds the sum of all amounts that, if all of the attributable agreement payments liable to be made under the relevant agreement were made, would, disregarding this subsection, be deemed to be income that consists of interest under subsection (5) in relation to the relevant agreement;

the amount of the notional interest in relation to the first attributable agreement payment in relation to the relevant agreement shall, for the purposes of this section, be increased by an amount equal to the excess referred to in paragraph (b).

 (7) For the purposes of section 128D, where withholding tax is payable on a part of an attributable agreement payment that is taken under subsection (5) of this section to be an amount of interest, the withholding tax shall be taken to be payable on the whole of the attributable agreement payment.

128AD  Indemnification etc. agreements in relation to bills of exchange and promissory notes

 (1) Where:

 (a) the drawer of a bill of exchange issued after the day on which this section comes into operation pays an amount (in this subsection referred to as the indemnification amount) to the acceptor of the bill to indemnify, reimburse or otherwise compensate the acceptor in respect of the whole or a part of an amount (which whole or part is in this subsection referred to as the eligible presentment amount) that the acceptor has, or will, become liable to pay to the payee under the bill on presentment of the bill;

 (b) no part of the indemnification amount is, or will be, included in the assessable income of the acceptor of any year of income; and

 (c) the whole or a part (in this subsection referred to as the eligible presentment interest) of the eligible presentment amount consists or will consist of interest;

so much of the indemnification amount as indemnifies, reimburses or otherwise compensates the acceptor in respect of the eligible presentment interest shall, for the purposes of this Division, be deemed to be income that consists of interest.

 (2) Where:

 (a) a person (in this subsection referred to as the indemnifier) pays an amount (in this subsection referred to as the indemnification amount) to the issuer of a promissory note issued after the day on which this section comes into operation to indemnify, reimburse or otherwise compensate the issuer in respect of the whole or a part of an amount (which whole or part is in this subsection referred to as the eligible presentment amount) that the issuer has, or will, become liable to pay to the payee under the note on presentment of the note;

 (b) no part of the indemnification amount is, or will be, included in the assessable income of the issuer of any year of income; and

 (c) the whole or a part (in this subsection referred to as the eligible presentment interest) of the eligible presentment amount consists or will consist of interest;

so much of the indemnification amount as indemnifies, reimburses or otherwise compensates the issuer in respect of the eligible presentment interest shall, for the purposes of this Division, be deemed to be income that consists of interest.

128AE  Interpretation provisions relating to offshore banking units

 (1) In this Division, unless the contrary intention appears:

borrow includes raise finance by the issue of a security.

lend includes provide finance by the purchase of a security.

OB activity has the same meaning as in section 121D.

offshore banking unit has the meaning given by this section.

offshore borrowing means:

 (a) a borrowing in any currency, by a person who is or has been an offshore banking unit, from a nonresident who is not a related person (within the meaning of Division 9A); or

 (b) a borrowing in a currency other than Australian currency, by a person who is or has been an offshore banking unit, from a resident or a related person (within the meaning of Division 9A).

offshore gold borrowing means borrowing gold from an offshore person within the meaning of section 121E.

prevailing borrowing rate, in relation to a person who is or has been an offshore banking unit, in relation to a particular time, means the effective annual interest rate that the Commissioner considers was payable by the person on borrowings at or about that time or, where there were none, by offshore banking units generally at or about that time.

prevailing borrowing term, in relation to a person who is or has been an offshore banking unit, in relation to a particular time, means the period that the Commissioner considers was the usual term of borrowings by the person at or about that time or, where there were none, by offshore banking units generally at or about that time.

security means a bond, debenture, debt interest, bill of exchange, promissory note or other security or similar instrument.

tax exempt gold means gold that is tax exempt gold under this section.

tax exempt loan money means an amount that is tax exempt loan money under this section.

transfer to a person includes apply an amount for the benefit of a person.

 (2) The Treasurer may, by notice published in the Gazette, declare a person being:

 (a) a body corporate that is an ADI (authorised deposittaking institution) for the purposes of the Banking Act 1959; or

 (b) a public authority constituted by a law of a State, being a public authority that carries on the business of State banking; or

 (ba) a company in which all of the equity interests are beneficially owned by an offshore banking unit (other than one to which paragraph (c) applies); or

 (c) a person whom the Treasurer is satisfied is appropriately authorised to carry on business as a dealer in foreign exchange; or

 (d) a life insurance company registered under section 21 of the Life Insurance Act 1995; or

 (e) a company incorporated under the Corporations Act 2001 that provides funds management services on a commercial basis (other than solely to related persons):

 (i) that is, under the Financial Sector (Collection of Data) Act 2001, a registered entity included in the category for money market corporations; or

 (ii) all of the shares which are beneficially owned by a company covered by subparagraph (i); or

 (iii) a financial services licensee (as defined by section 761A of the Corporations Act 2001) whose licence covers dealing in securities (as defined by subsection 92(3) of the Corporations Act 2001), providing financial advice in relation to such securities or operating a managed investment scheme (as defined by section 9 of the Corporations Act 2001); or

 (f) a company that the Treasurer determines, in writing, to be an OBU under subsection (2AA);

to be an offshore banking unit for the purposes of this Division.

 (2AA) The Treasurer may, on written application by a company, make a written determination that the company is an OBU.

 (2AB) The determination must:

 (a) specify the day when the company commences to be an OBU; and

 (b) contain any other information the Treasurer considers appropriate.

 (2AC) A determination of the Treasurer under subsection (2AA) must be made in accordance with guidelines determined by the Treasurer under subsection (2AD).

 (2AD) The Treasurer must, by legislative instrument, determine guidelines for the making of determinations under subsection (2AA). The guidelines may require the Treasurer to take into account:

 (a) specified criteria; or

 (b) recommendations of particular bodies; or

 (c) any other factors.

 (2A) If a person who is an offshore banking unit for the purposes of this Division:

 (a) is convicted of an offence against section 8L, 8N, 8Q, 8T or 8U of the Taxation Administration Act 1953, or against Division 136 or 137 of the Criminal Code in relation to a taxation law (within the meaning of the Taxation Administration Act 1953); or

 (b) incurs a tax liability, within the meaning of that Act, by way of a penalty equal to 90% of an amount;

the Treasurer may declare, by notice published in the Gazette, that the person is no longer an offshore banking unit for the purposes of this Division.

 (2B) If the Treasurer makes such a declaration in respect of a company that is an offshore banking unit only because of paragraph (2)(ba), the offshore banking unit mentioned in that paragraph, and in any previous application of that paragraph that was necessary for it to apply to the company, is no longer an offshore banking unit from the time when the declaration comes into force.

 (2C) If a person who is an offshore banking unit ceases to be a person of a kind mentioned in any of paragraphs (2)(a), (b), (ba) and (c), the Treasurer must declare, by notice published in the Gazette, that the person is no longer an offshore banking unit for the purposes of this Division.

 (2D) Except as mentioned in subsection (2A), (2B) or (2C), a person does not cease to be an offshore banking unit for the purposes of this Division.

 (3) A declaration under subsection (2), (2A) or (2C) shall not come into force before the day on which the notice containing the declaration is published in the Gazette.

 (4) Where:

 (a) a person who is an offshore banking unit makes an offshore borrowing or offshore gold borrowing; and

 (b) the lender would, but for section 128GB, be liable to pay withholding tax on income consisting of interest on the offshore borrowing or offshore gold borrowing;

then, for the purposes of this Division, the amount borrowed is tax exempt loan money or tax exempt gold of the person.

 (5) Where:

 (a) a person who is or has been an offshore banking unit makes a loan of tax exempt loan money or tax exempt gold where the loan is an OB activity or would be if the person were an OBU; and

 (b) the loan is repaid;

the amount repaid is, for the purposes of this Division, deemed to be tax exempt loan money or tax exempt gold of the person.

 (7) Where a person who is or has been an offshore banking unit transfers an amount of tax exempt loan money or tax exempt gold to another person, the following provisions have effect for the purposes of this Division:

 (a) subject to subsections (10) and (11), the amount transferred ceases to be tax exempt loan money or tax exempt gold of the person; and

 (b) the amount transferred does not become tax exempt loan money or tax exempt gold of the other person.

 (8) Where a person who is or has been an offshore banking unit transfers to another person an amount of money or gold that, in the opinion of the Commissioner, includes tax exempt loan money or tax exempt gold, so much of the amount transferred as the Commissioner considers was tax exempt loan money or tax exempt gold is deemed, for the purposes of this Division, to have been tax exempt loan money or tax exempt gold of the person.

 (9) Where a person who is or has been an offshore banking unit deals with an amount of tax exempt loan money or tax exempt gold of the person under the person’s internal accounting arrangements in such a way that the amount becomes available for possible transfer to other persons (other than by way of payment in carrying on an OB activity, or what would be an OB activity if the person were an OBU, or repayment of an offshore borrowing or an offshore gold borrowing), the following provisions have effect for the purposes of this Division:

 (a) the person is, when the amount so becomes available, deemed to make a transfer of the amount to another person, other than by way of payment in carrying on an OB activity (or what would be an OB activity if the person were an OBU) or repayment of an offshore borrowing or an offshore gold borrowing;

 (b) any actual transfer of the amount by the person to another person shall be disregarded.

 (10) For the purposes of this Division, where a person who is or has been an offshore banking unit transfers tax exempt loan money to another person in exchange for an equivalent amount in a different currency:

 (a) the amount received in exchange shall be taken to be the same money as was transferred; and

 (b) the transfer shall be taken not to have occurred.

 (11) For the purposes of this Division, where a person who is or has been an offshore banking unit transfers tax exempt loan money or tax exempt gold to another person by way of a deposit for the purposes of temporary safekeeping pending the making of an offshore loan or repayment of an offshore borrowing or an offshore gold borrowing:

 (a) the amount held on deposit and upon being repaid shall be taken to be the same money as was transferred; and

 (b) the transfer shall be taken not to have occurred.

 (12) For the purposes of this section, an amount:

 (a) deposited in an account with a bank or other financial institution; or

 (b) paid by way of consideration for the issue of a security;

shall be taken to have been lent to, and borrowed by, the bank, financial institution or issuer of the security.

 (13) If an offshore banking unit consists of:

 (a) one or more permanent establishments in Australia at or through which the offshore banking unit carries on what are OB activities within the meaning of Division 9A; and

 (b) one or more other permanent establishments either in Australia or outside Australia;

then this section and section 128NB apply as if:

 (c) the offshore banking unit consisted only of the permanent establishments referred to in paragraph (a); and

 (d) the permanent establishments referred to in paragraph (b) were separate persons.

128AF  Payments through interposed entities

 (1) This section applies if:

 (a) a payment received by a nonresident through one or more interposed companies, partnerships, trusts or other persons is attributable to an amount of dividends, interest or royalties paid by a resident; and

 (b) one or more of the interposed companies, partnerships, trusts or other persons is exempt from tax.

 (2) If this section applies, the amount of dividends, interest or royalties paid by a resident is taken, for the purposes of this Division, to have been paid by the resident directly to the nonresident.

 (3) For the purposes of this section, a person is exempt from tax if, at the time at which the payment was received by the nonresident, all income of the person was exempt from tax.

128B  Liability to withholding tax

 (1A) In this section, a reference to a person to whom this section applies is a reference to the Commonwealth, a State, an authority of the Commonwealth or of a State or a person who is, or persons at least 1 of whom is, a resident.

 (1) Subject to subsections (3), (3A), (3D) and (3E), this section applies to income that:

 (a) is derived, on or after 1 January 1968, by a nonresident; and

 (b) consists of a dividend paid by a company that is a resident.

Note: An amount declared to be conduit foreign income is an amount to which this section does not apply: see sections 80215 and 80217 of the Income Tax Assessment Act 1997.

 (2) Subject to subsection (3), this section also applies to income that:

 (a) is derived, on or after 1 January 1968, by a nonresident; and

 (b) consists of interest that:

 (i) is paid to the nonresident by a person to whom this section applies and is not an outgoing wholly incurred by that person in carrying on business in a country outside Australia at or through a permanent establishment of that person in that country; or

 (ii) is paid to the nonresident by a person who, or by persons each of whom, is not a resident and is, or is in part, an outgoing incurred by that person or those persons in carrying on business in Australia at or through a permanent establishment of that person or those persons in Australia.

Note: An amount of interest paid to a person by a temporary resident is an amount to which this section does not apply: see section 768980 of the Income Tax Assessment Act 1997.

 (2A) Subject to subsection (3), where income:

 (a) is, or has, after 2 July 1973, been, derived, or derived in part, by a person to whom this section applies in carrying on business in a country outside Australia at or through a permanent establishment of the person in that country; and

 (b) consists of interest that:

 (i) is or has been paid to the person by another person to whom this section applies and is not an outgoing wholly incurred by that other person in carrying on business in a country outside Australia at or through a permanent establishment of that other person in that country; or

 (ii) is or has been paid to the firstmentioned person by a person who is, or by persons each of whom is, not a resident and is, or is in part, an outgoing incurred by that lastmentioned person or those lastmentioned persons in carrying on business in Australia at or through a permanent establishment of that last mentioned person or those lastmentioned persons in Australia;

this section also applies to that income or to the part of that income so derived, as the case may be.

Note: An amount of interest paid to a person by a temporary resident is an amount to which this section does not apply: see section 768980 of the Income Tax Assessment Act 1997.

 (2B) Subject to subsection (3), this section also applies to income that:

 (a) is derived by a nonresident:

 (i) during the 199394 year of income of the nonresident; or

 (ii) during a later year of income of the nonresident; and

 (b) consists of a royalty that:

 (i) is paid to the nonresident by a person to whom this section applies and is not an outgoing wholly incurred by that person in carrying on business in a foreign country at or through a permanent establishment of that person in that country; or

 (ii) is paid to the nonresident by a person who, or by persons each of whom, is not a resident and is, or is in part, an outgoing incurred by that person or those persons in carrying on business in Australia at or through a permanent establishment of that person or those persons in Australia.

 (2C) Subject to subsection (3), where income:

 (a) is derived, or derived in part, by a person (the recipient) to whom this section applies in carrying on business in a country outside Australia at or through a permanent establishment of the person in that country; and

 (b) consists of a royalty that:

 (i) is paid to the recipient by another person (the payer) to whom this section applies and is not an outgoing wholly incurred by the payer in carrying on business in a country outside Australia at or through a permanent establishment of the payer in that country; or

 (ii) is paid to the recipient by one or more persons (the nonresident payers), each of whom is not a resident, and is, or is in part, an outgoing incurred by the nonresident payers in carrying on business in Australia at or through a permanent establishment of the nonresident payers in Australia;

this section also applies to that income or to the part of that income mentioned in paragraph (a).

 (2D) Subsections (2B) and (2C) do not apply to income to the extent to which it is a return on an equity interest in a company.

 (3) This section does not apply to:

 (aaa) income that consists of a nonshare dividend that is unfrankable under section 21510 of the Income Tax Assessment Act 1997; or

 (a) income derived by a nonresident that is:

 (i) exempt from income tax because of section 505 (other than because of item 1.5A, 1.5B or 1.6 in the table in that section) or 5010, item 6.1 or 6.2 of the table in section 5030, section 5040 or item 9.1 or 9.2 of the table in section 5045 of the Income Tax Assessment Act 1997; and

 (ii) exempt from income tax in the country in which the nonresident resides; or

 (aa) income derived by a nonresident that is an overseas charitable institution (within the meaning of section 121C) where the income is exempt under subsection 121ELA(1); or

 (ba) income that is exempt from income tax because of section 124ZM (which exempts dividends paid by PDFs); or

 (bb) income that is not included in assessable income because of section 159GZZZZE; or

 (d) income in respect of which a trustee is liable to be assessed under section 99 or section 99A; or

 (e) income that is derived by a trustee, being a trustee in relation to a trust created by a person who, at the time the income is derived, is a resident and in respect of which the Commissioner is empowered, under section 102, to assess the trustee to pay income tax; or

 (ga) income that consists of:

 (i) the franked part of a dividend; or

 (ii) in relation to a dividend that is paid by a former exempting entity (within the meaning of the Income Tax Assessment Act 1997) on a share acquired under an employee share scheme (within the meaning of that Act)—the part of the dividend that is franked with an exempting credit; or

 (iii) in relation to a dividend that is paid by a former exempting entity (within the meaning of the Income Tax Assessment Act 1997) to an eligible continuing substantial member (within the meaning of that Act)—the part of the dividend that is franked with an exempting credit;

  other than a dividend in respect of which a determination is made under paragraph 20430(3)(c) of the Income Tax Assessment Act 1997 or a dividend or a part of a dividend in respect of which a determination is made under paragraph 177EA(5)(b) of this Act; or

 (gb) income that consists of a dividend derived from assets included in the insurance funds of a life assurance company that carries on business in Australia at or through a permanent establishment of the life assurance company in Australia; or

 (gc) income that consists of interest derived on a nostro account by a nonresident that is a foreign bank; or

 (h) income that consists of:

 (ii) interest derived by a nonresident in carrying on business in Australia at or through a permanent establishment of the nonresident in Australia (except interest derived by a limited partner in a VCLP, ESVCLP or AFOF as such a partner);

 (iv) interest to which section 128F, 128FA or 128GB applies; or

 (j) income in respect of which a taxpayer is liable to be assessed under Division 9C; or

 (jb) income that:

 (i) is derived by a nonresident that is a superannuation fund for foreign residents; and

 (ii) consists of interest, or consists of dividends or nonshare dividends paid by a company that is a resident; and

 (iii) is exempt from income tax in the country in which the nonresident resides; or

 (k) income that is not included in assessable income because of subsection 271105(1); or

 (l) income derived by a trustee that, because of paragraph 102UK(2)(b) or 102UM(2)(b), is not included in the assessable income of a trustee beneficiary of the trust estate; or

 (m) income that consists of a royalty that is paid to the nonresident by a person (the lessee) as consideration for the lease, by the lessee from the nonresident, of a vessel if:

 (i) the lessee is an Australian resident company; and

 (ii) the vessel is not an excluded vessel (within the meaning of the Shipping Reform (Tax Incentives) Act 2012); and

 (iii) under the lease, the lessee has whole possession and control of the vessel (including the right to appoint the master and crew of the ship); and

 (iv) during the period of the lease, the vessel is used, or is available for use, as mentioned in paragraph 8(1)(c) of the Shipping Reform (Tax Incentives) Act 2012.

 (3A) Paragraph (3)(ga) does not apply to income consisting of a dividend, or a part of a dividend, that is derived by the trustee of a trust, or a partnership, to the extent (if any) to which any amount paid to, or applied for the benefit of, a taxpayer (being a beneficiary in the trust or a partner in the partnership) that:

 (a) was attributable to the dividend; and

 (b) was paid or applied:

 (i) in respect of an interest in the trust or partnership that was acquired, or was acquired for a period that was extended, at or after the commencing time; or

 (ii) under a financing arrangement (including an arrangement extending an earlier arrangement) entered into at or after the commencing time;

may reasonably be regarded as equivalent to the payment of interest on a loan.

 (3B) In subsection (3A):

commencing time means 7.30 pm by legal time in the Australian Capital Territory on 13 May 1997.

financing arrangement has the meaning given by subsection 9951(1) of the Income Tax Assessment Act 1997.

 (3C) In determining for the purposes of subsection (3A) the extent (if any) to which an amount may reasonably be regarded as equivalent to the payment of interest on a loan, regard is to be had to:

 (a) the way in which the amount was calculated; and

 (b) the conditions applying to the payment or application of the amount; and

 (c) any other relevant matters.

 (3D) This section does not apply to a demerger dividend to which section 45B does not apply.

 (3E) This section does not apply to income that consists of a dividend that:

 (a) is paid to a person who is a nonresident carrying on business in Australia at or through a permanent establishment of the person in Australia; and

 (b) is attributable to the permanent establishment; and

 (c) is not paid to the person in the person’s capacity as trustee.

Note: This subsection not only ensures that this section does not apply to that income to make withholding tax payable on it, but also (as a result) ensures that none of that income is nonassessable nonexempt income under section 128D. Subsection 44(1) makes that income assessable income.

 (3F) In subsection (3E):

permanent establishment of a person:

 (a) has the same meaning as in a double tax agreement (as defined in Part X) that relates to a foreign country and affects the person; or

 (b) has the meaning given by subsection 6(1), if there is no such agreement.

 (4) A person who derives income to which this section applies that consists of a dividend is liable to pay income tax upon that income at the rate declared by the Parliament in respect of income to which this subsection applies.

 (5) A person who derives income to which this section applies that consists of interest is, subject to subsections (6) and (7), liable to pay income tax upon that income at the rate declared by the Parliament in respect of income to which this subsection applies.

 (5A) A person who derives income to which this section applies that consists of a royalty is liable to pay income tax upon that income at the rate declared by the Parliament in respect of income to which this subsection applies.

 (6) Where:

 (a) income to which this section applies consists of interest and is paid to the person by whom it is derived by a person to whom this section applies; and

 (b) the interest is, in part only, an outgoing incurred by that person to whom this section applies in carrying on business in a country outside Australia at or through a permanent establishment of that person to whom this section applies in that country;

income tax is payable under subsection (5) upon so much only of the income as is attributable to so much of the interest as is not an outgoing so incurred.

 (7) Where:

 (a) income to which this section applies consists of interest and is paid to the person by whom it is derived by a person who, or by persons each of whom, is not a resident; and

 (b) the interest is, in part only, an outgoing incurred by the person or persons by whom it is paid in carrying on business in Australia at or through a permanent establishment of that person or those persons in Australia;

income tax is payable under subsection (5) upon so much only of the income as is attributable to so much of the interest as is an outgoing so incurred.

 (8) For the purposes of subparagraphs (2)(b)(i) and (2A)(b)(i) and paragraph (6)(b), where:

 (a) interest is paid, or has, after 2 July 1973, been paid, to a person by another person, being a person to whom this section applies, carrying on business in a country outside Australia; and

 (b) the interest or a part of the interest:

 (i) is interest incurred by the other person in gaining or producing income that is derived by the other person otherwise than in carrying on business in a country outside Australia at or through a permanent establishment of the other person in that country or is interest incurred by the other person for the purpose of gaining or producing income to be so derived; or

 (ii) is interest incurred by the other person in carrying on business for the purpose of gaining or producing income and is reasonably attributable to income that is derived, or may be derived, by the other person otherwise than in so carrying on business at or through a permanent establishment of the other person in a country outside Australia;

the interest or the part of the interest, as the case may be, is not an outgoing incurred by the other person in carrying on business in a country outside Australia at or through a permanent establishment of the other person in that country.

 (9) For the purposes of subparagraphs (2)(b)(ii) and (2A)(b)(ii) and paragraph (7)(b), where:

 (a) interest is paid, or has, after 2 July 1973, been paid, to a person by another person or other persons (in this subsection referred to as the borrower), being:

 (i) another person who is or was carrying on business in Australia and is not or was not a resident; or

 (ii) other persons who are or were carrying on business in Australia and each of whom is not or was not a resident; and

 (b) the interest or a part of the interest:

 (i) is interest incurred by the borrower in gaining or producing income that is derived by the borrower in carrying on business in Australia at or through a permanent establishment of the borrower in Australia or is interest incurred by the borrower for the purpose of gaining or producing income to be so derived; or

 (ii) is interest incurred by the borrower in carrying on a business for the purpose of gaining or producing income and is reasonably attributable to income that is derived, or may be derived, by the borrower in so carrying on business at or through a permanent establishment of the borrower in Australia;

the interest or the part of the interest, as the case may be, is an outgoing incurred by the borrower in carrying on business in Australia at or through a permanent establishment of the borrower in Australia.

 (9A) For the purposes of subparagraphs (2B)(b)(i) and (2C)(b)(i), where:

 (a) a royalty is paid, to a person by another person, being a person to whom this section applies, carrying on business in a country outside Australia; and

 (b) the royalty, or a part of the royalty:

 (i) is a royalty incurred by the other person in gaining or producing income that is derived by the other person otherwise than in carrying on business in a country outside Australia at or through a permanent establishment of the other person in that country or is a royalty incurred by the other person for the purpose of gaining or producing income to be so derived; or

 (ii) is a royalty incurred by the other person in carrying on business for the purpose of gaining or producing income and is reasonably attributable to income that is derived, or may be derived, by the other person otherwise than in so carrying on business at or through a permanent establishment of the other person in a country outside Australia;

the royalty or the part of the royalty, as the case may be, is not an outgoing incurred by the other person in carrying on business in a country outside Australia at or through a permanent establishment of the other person in that country.

 (9B) For the purposes of subparagraphs (2B)(b)(ii) and (2C)(b)(ii), where:

 (a) a royalty is paid to a person by another person or other persons (the licensee), being:

 (i) another person who is or was carrying on business in Australia and is not or was not a resident; or

 (ii) other persons who are or were carrying on business in Australia and each of whom is not or was not a resident; and

 (b) the royalty or a part of the royalty:

 (i) is a royalty incurred by the licensee in gaining or producing income that is derived by the licensee in carrying on business in Australia at or through a permanent establishment of the licensee in Australia or is a royalty incurred by the licensee for the purpose of gaining or producing income to be so derived; or

 (ii) is a royalty incurred by the licensee in carrying on a business for the purpose of gaining or producing income and is reasonably attributable to income that is derived, or may be derived, by the licensee in so carrying on business at or through a permanent establishment of the licensee in Australia;

the royalty or the part of the royalty, as the case may be, is an outgoing incurred by the licensee in carrying on business in Australia at or through a permanent establishment of the licensee in Australia.

 (9C) If:

 (a) apart from this subsection, tax would be payable under subsection 126(1) on an amount of interest paid to a person; and

 (b) section 128F would apply to the interest, assuming that paragraph (1)(e) of that section had not been enacted;

then:

 (c) despite anything else in this section, the interest is taken, for the purposes of this Division, to be income derived by the person and to be income to which this section applies; and

Note: As a result of this paragraph, the interest will not be subject to tax under subsection 126(1): see paragraph 126(1)(b).

 (d) in addition to the effect of any credit arising under section 1830 in Schedule 1 to the Taxation Administration Act 1953 in respect of the interest, the total tax payable by the person, other than under this section, is reduced by the amount of any tax payable under this section on the interest; and

 (e) tax paid under this section on the interest is not an allowable deduction.

 (10) Income tax payable by a person in accordance with this section is in addition to any other income tax payable by him or her upon income to which this section does not apply.

 (11) Income tax payable by a person in accordance with this section upon income to which this section applies by virtue of subsection (2A) or (2C) is in addition to, and shall not be taken into account in arriving at the amount of, any other income tax payable by him or her in respect of that income.

128C  Payment of withholding tax

 (1) Withholding tax is due and payable by the person liable to pay the tax at the expiration of 21 days after the end of the month in which the income to which the tax relates was derived by the person.

 (3) If any of the withholding tax which a person is liable to pay remains unpaid after the time by which it is due to be paid, the person is liable to pay the general interest charge on the unpaid amount for each day in the period that:

 (a) started at the beginning of the day by which the withholding tax was due to be paid; and

 (b) finishes at the end of the last day on which, at the end of the day, any of the following remains unpaid:

 (i) the withholding tax;

 (ii) general interest charge on any of the withholding tax.

Note: The general interest charge is worked out under Part IIA of the Taxation Administration Act 1953.

 (4AA) If:

 (a) a person is liable to pay the general interest charge on an amount of withholding tax which is payable on an amount that, by virtue of the application of section 128AA, is taken to consist of interest paid in relation to the transfer of a qualifying security;

 (b) the Commissioner is satisfied that:

 (i) before the security was transferred, a notice expressed to be issued under subsection 265B(4) identifying the security was given by the person, in connection with the transfer, to the transferee;

 (ii) one or more of the statements made in the notice is incorrect; and

 (iii) the person did not know of the circumstance referred to in subparagraph (ii) at the time of transfer of the security; and

 (c) the proper amount of the withholding tax liability of the person exceeds the amount that would have been the amount of the withholding tax liability if it were determined on the basis that the statements made in the notice were correct;

the Commissioner shall remit so much of the amount of the general interest charge as bears to that amount the same proportion as the amount of the excess referred to in paragraph (c) bears to the amount of withholding tax.

 (6) The ascertainment of the amount of any withholding tax shall not be deemed to be an assessment within the meaning of any of the provisions of this Act.

 (7) The Commissioner may serve on a person, by post or otherwise, a notice in which is specified:

 (a) the amount of any withholding tax that the Commissioner has ascertained is payable by that person; and

 (b) the date on which that tax became due and payable.

 (8) The production of a notice served under subsection (7), or of a document under the hand of the Commissioner, a Second Commissioner or a Deputy Commissioner purporting to be a copy of such a notice, is evidence that the amount of withholding tax specified in the notice became due and payable by the person on whom the notice was served on the date so specified.

128D  Certain income not assessable

  Income other than income to which section 128B applies by virtue of subsection (2A), (2C) or (9C) of that section upon which withholding tax is payable, or upon which withholding tax would, but for paragraph 128B(3)(ga), (jb) or (m), section 128F, section 128FA or section 128GB, be payable, is not assessable income and is not exempt income of a person.

Note: An amount of interest paid to a person by a temporary resident is nonassessable nonexempt income: see section 768980 of the Income Tax Assessment Act 1997.

128F  Division does not apply to interest on certain publicly offered company debentures or debt interests

Interest to which this section applies

 (1) This section applies to interest paid by a company in respect of a debenture or debt interest in the company if:

 (a) the company was a resident of Australia when it issued the debenture or debt interest; and

 (b) the company is a resident of Australia when the interest is paid; and

 (c) for a debt interest other than a debenture—the debt interest:

 (i) is a nonequity share; or

 (ii) consists of 2 or more related schemes (within the meaning of the Income Tax Assessment Act 1997) where one or more of them is a nonequity share; or

 (iii) is a syndicated loan; or

 (iv) is prescribed by the regulations for the purposes of this section; and

 (d) either:

 (i) the issue of the debenture or debt interest satisfies the public offer test set out in subsection (3) or (4); or

 (ii) for a syndicated loan—the invitation to become a lender under the relevant syndicated loan facility satisfies the public offer test set out in subsection (3A).

 (1A) This section also applies to interest paid by a company in respect of a debenture or debt interest in the company if:

 (a) the company was a nonresident when it issued the debenture or debt interest; and

 (b) the company is a nonresident when the interest is paid; and

 (c) the debenture or debt interest was issued, and the interest is paid, by the company in carrying on business at or through a permanent establishment in Australia; and

 (d) for a debt interest other than a debenture—the debt interest:

 (i) is a nonequity share; or

 (ii) consists of 2 or more related schemes (within the meaning of the Income Tax Assessment Act 1997) where one or more of them is a nonequity share; or

 (iii) is a syndicated loan; or

 (iv) is prescribed by the regulations for the purposes of this section; and

 (e) either:

 (i) the issue of the debenture or debt interest satisfies the public offer test set out in subsection (3) or (4); or

 (ii) for a syndicated loan—the invitation to become a lender under the relevant syndicated loan facility satisfies the public offer test set out in subsection (3A).

 (1B) If:

 (a) some or all of the transfer price (within the meaning of section 128AA) of a debenture or debt interest is taken under that section to be income that consists of interest; and

 (b) for a debt interest other than a debenture—the debt interest:

 (i) is a nonequity share; or

 (ii) consists of 2 or more related schemes (within the meaning of the Income Tax Assessment Act 1997) where one or more of them is a nonequity share; or

 (iii) is a syndicated loan; or

 (iv) is prescribed by the regulations for the purposes of this section; and

 (c) either:

 (i) the issue of the debenture or debt interest satisfies the public offer test set out in subsection (3) or (4); or

 (ii) for a syndicated loan—the invitation to become a lender under the relevant syndicated loan facility satisfies the public offer test set out in subsection (3A);

this section applies to the interest.

Note: Subsection (6) does not apply to the interest because that subsection deals only with interest paid on a debenture or debt interest by the issuing company.

Tax not payable

 (2) Tax is not payable under this Division in respect of interest to which this section applies.

Public offer test

 (3) The issue of a debenture or debt interest by a company satisfies the public offer test if the issue resulted from the debenture or debt interest being offered for issue:

 (a) to at least 10 persons each of whom:

 (i) was carrying on a business of providing finance, or investing or dealing in securities, in the course of operating in financial markets; and

 (ii) was not known, or suspected, by the company to be an associate (see subsection (9)) of any of the other persons covered by this paragraph; or

 (b) to at least 100 persons whom it was reasonable for the company to have regarded as either:

 (i) having acquired debentures or debt interests in the past; or

 (ii) being likely to be interested in acquiring debentures or debt interests; or

 (c) as a result of being accepted for listing on a stock exchange, where the company had previously entered into an agreement with a dealer, manager or underwriter, in relation to the placement of debentures or debt interests, requiring the company to seek such listing; or

 (d) as a result of negotiations being initiated publicly in electronic form, or in another form, that was used by financial markets for dealing in debentures or debt interests; or

 (e) to a dealer, manager or underwriter, in relation to the placement of debentures or debt interests, who, under an agreement with the company, offered the debenture or debt interest for sale within 30 days in a way covered by any of paragraphs (a) to (d).

 (3A) An invitation to become a lender under a syndicated loan facility by a company satisfies the public offer test if the invitation was made:

 (a) to at least 10 persons each of whom:

 (i) was carrying on a business of providing finance, or investing or dealing in securities, in the course of operating in financial markets; and

 (ii) was not known, or suspected, by the company to be an associate (see subsection (9)) of any of the other persons covered by this paragraph; or

 (b) publicly in electronic form, or in another form, that was used by financial markets for dealing in debentures or debt interests; or

 (c) to a dealer, manager or underwriter, in relation to the placement of debentures or debt interests, who, under an agreement with the company, made the invitation to become a lender under the facility within 30 days in a way covered by paragraph (a) or (b).

Global bonds

 (4) The issue of a debenture or debt interest by a company also satisfies the public offer test if the debenture or debt interest is a global bond (see subsection (10)).

Issues and invitations that always fail the public offer test

 (5) The issue of a debenture or debt interest by a company does not satisfy the public offer test if, at the time of the issue, the company knew, or had reasonable grounds to suspect, that:

 (a) the debenture, an interest in the debenture or the debt interest was being, or would be, acquired either directly or indirectly by an associate of the company; and

 (b) either:

 (i) the associate is a nonresident and the debenture or interest, or the debt interest, was not being, or would not be, acquired by the associate in carrying on a business in Australia at or through a permanent establishment of the associate in Australia; or

 (ii) the associate is a resident of Australia and the debenture or interest, or the debt interest, was being, or would be, acquired by the associate in carrying on a business in a country outside Australia at or through a permanent establishment of the associate in that country; and

 (c) the debenture or interest, or the debt interest, was not being, or would not be, acquired by the associate in the capacity of:

 (i) a dealer, manager or underwriter in relation to the placement of the debenture or debt interest; or

 (ii) a clearing house, custodian, funds manager or responsible entity of a registered scheme.

 (5AA) An invitation to become a lender under a syndicated loan facility is taken never to have satisfied the public offer test if, at the time the invitation is made, the company knew, or had reasonable grounds to suspect, that:

 (a) an associate of the company is or will become a lender under the facility; and

 (b) either:

 (i) the associate is a nonresident and the associate is not or would not become a lender under the facility in carrying on a business in Australia at or through a permanent establishment of the associate in Australia; or

 (ii) the associate is a resident of Australia and the associate is or would become a lender under the facility in carrying on a business in a country outside Australia at or through a permanent establishment of the associate in that country; and

 (c) the associate is not or would not become a lender under the facility in the capacity of:

 (i) a dealer, manager or underwriter in relation to the invitation; or

 (ii) a clearing house, custodian, funds manager or responsible entity of a registered scheme.

No exemption for interest paid to certain associates of the issuing company

 (6) This section does not apply to interest paid by the company to a person in respect of the debenture or debt interest if, at the time of the payment, the company knows, or has reasonable grounds to suspect, that:

 (a) the person is an associate of the company; and

 (b) either:

 (i) the associate is a nonresident and the payment is not received by the associate in respect of a debenture or debt interest that the associate acquired in carrying on a business in Australia at or through a permanent establishment of the associate in Australia; or

 (ii) the associate is a resident of Australia and the payment is received by the associate in respect of a debenture or debt interest that the associate acquired in carrying on a business in a country outside Australia at or through a permanent establishment of the associate in that country; and

 (c) the associate does not receive the payment in the capacity of a clearing house, paying agent, custodian, funds manager or responsible entity of a registered scheme.

Australian public bodies are treated as Australian resident companies

 (7) This section applies in relation to a debenture or debt interest issued by:

 (a) the Commonwealth, a State or a Territory; or

 (b) an authority of the Commonwealth, of a State or of a Territory;

as if the Commonwealth, State, Territory or authority were a company and a resident of Australia.

Debentures or debt interests issued through certain nonresident subsidiaries can also get the exemption

 (8) If:

 (a) a company (the parent company) beneficially owns all of the issued equity interests in the capital of a company (the subsidiary) that is not a resident of Australia; and

 (b) the subsidiary’s only business is raising finance for the purposes of the parent company; and

 (c) the subsidiary raises finance in a country specified in the regulations (but not Australia) by issuing a debenture or debt interest in that country; and

 (d) when the debenture or debt interest is issued, the subsidiary is treated as a resident of that country for the purposes of the tax law (see subsection (9)) of the country;

then this section has effect as if the parent company had raised the finance and issued the debenture or debt interest.

Definitions

 (9) In this section:

associate has the meaning given by section 318, except that paragraphs (1)(b), (2)(a) and (4)(a) of that section must be disregarded.

clearing house means a person who operates a facility that is used by financial markets for investing in or dealing in securities.

company includes a company in the capacity of trustee of a resident trust estate if:

 (a) the trust is not established by a will, or instrument of trust, for public charitable purposes; and

 (b) the only person who is capable (whether by the exercise of a power of appointment or otherwise) of benefiting under the trust is a company other than a company in the capacity of trustee.

debenture, without affecting its meaning elsewhere in this Act, includes a promissory note or a bill of exchange (in addition to the things mentioned in the definition of debenture in subsection 6(1)).

global bond has the meaning given by subsection (10).

registered scheme has the same meaning as in the Corporations Act 2001.

responsible entity, of a registered scheme, has the same meaning as in the Corporations Act 2001.

syndicated loan means a loan or other form of financial accommodation that is provided under a syndicated loan facility, being a facility that has 2 or more lenders.

syndicated loan facility has the meaning given by subsections (11), (12) and (13).

tax law, in relation to a country other than Australia, means:

 (a) if the country has federal foreign tax—the law of the country that imposes the federal foreign tax; or

 (b) in any other case—the law of the country that imposes foreign tax.

Global bond

 (10) A debenture or debt interest issued by a company is a global bond if:

 (a) it describes itself as a global bond or a global note; and

 (b) it is issued to a clearing house (see subsection (9)) or to a person as trustee or agent for, or otherwise on behalf of, one or more clearing houses; and

 (c) in connection with the issue, the clearing house or houses:

 (i) confer rights in relation to the debenture or debt interest on other persons; and

 (ii) record the existence of the rights; and

 (d) before the issue:

 (i) the company; or

 (ii) a dealer, manager or underwriter, in relation to the placement of debentures or debt interests, on behalf of the company;

  announces that, as a result of the issue, such rights will be able to be created; and

 (e) the announcement is made in a way or ways covered by any of paragraphs (3)(a) to (e) (reading a reference in those paragraphs to “debentures or debt interests” as if it were a reference to such a right, and a reference to the “company” as if it included a reference to the dealer, manager or underwriter); and

 (f) under the terms of the debenture or debt interest, interests in the debenture or debt interest are able to be surrendered, whether or not in particular circumstances, in exchange for other debentures or debt interests issued by the company that are not themselves global bonds.

 (11) A written agreement is a syndicated loan facility if:

 (a) the agreement describes itself as a syndicated loan facility or syndicated facility agreement; and

 (b) the agreement is between one or more borrowers and at least 2 lenders; and

 (c) under the agreement each lender severally, but not jointly, agrees to lend money to, or otherwise provide financial accommodation to, the borrower or borrowers; and

 (d) the amount to which the borrower or borrowers will have access at the time the first loan or other form of financial accommodation is to be provided under the agreement is at least $100,000,000 (or a prescribed amount).

 (12) A written agreement is also a syndicated loan facility if:

 (a) the agreement describes itself as a syndicated loan facility or syndicated facility agreement; and

 (b) the agreement is between one or more borrowers and one lender where the agreement provides for the addition of other lenders; and

 (c) the agreement provides that, when other lenders are added, each lender severally, but not jointly, agrees to lend money to, or otherwise provide financial accommodation to, the borrower or borrowers; and

 (d) the amount to which the borrower or borrowers will have access at the time the first loan or other form of financial accommodation is to be provided under the agreement is at least $100,000,000 (or a prescribed amount).

 (13) However, an agreement under which there are 2 or more borrowers is a syndicated loan facility only if all of them are:

 (a) members of the same whollyowned group (within the meaning of the Income Tax Assessment Act 1997); or

 (b) parties to the same joint venture; or

 (c) associates of each other.

 (14) For the purposes of this section, a change (including by novation) to the lenders under a syndicated loan facility does not result in a different agreement.

 (15) For a debt interest that consists of 2 or more related schemes (within the meaning of the Income Tax Assessment Act 1997) where one or more of them is a nonequity share, this section applies only to interest paid in respect of the nonequity share.

Note: Subsection 128A(1AB) defines interest for the purposes of this Division. Under that subsection, dividends paid in respect of a nonequity share are treated as being interest.

 (16) The rule in subsection (15) does not apply to the extent that interest in respect of the other related scheme or schemes would be interest to which this section applies in respect of a debenture or debt interest.

128FA  Division does not apply to interest on certain publicly offered unit trust debentures or debt interests

Interest to which this section applies

 (1) This section applies to interest paid by the trustee of an eligible unit trust in respect of a debenture or debt interest issued by the trustee if:

 (a) for a debt interest other than a debenture—the debt interest:

 (i) is a syndicated loan; or

 (ii) is prescribed by the regulations for the purposes of this section; and

 (b) either:

 (i) the issue of the debenture or debt interest satisfies the public offer test set (see subsection (6)); or

 (ii) for a syndicated loan—the invitation to become a lender under the relevant syndicated loan facility satisfies the public offer test (see subsection (6A)).

 (2) If:

 (a) some or all of the transfer price (within the meaning of section 128AA) of a debenture or debt interest issued by the trustee of an eligible unit trust is taken under that section to be income that consists of interest; and

 (b) for a debt interest other than a debenture—the debt interest:

 (i) is a syndicated loan; or

 (ii) is prescribed by the regulations for the purposes of this section; and

 (c) either:

 (i) the issue of the debenture or debt interest satisfies the public offer test set (see subsection (6)); or

 (ii) for a syndicated loan—the invitation to become a lender under the relevant syndicated loan facility satisfies the public offer test (see subsection (6A));

this section applies to the interest.

Note: Subsection (4) does not apply to the interest because that subsection deals only with interest paid on a debenture or debt interest by the issuing eligible unit trust.

Tax not payable

 (3) Tax is not payable under this Division in respect of interest to which this section applies.

No exemption for interest paid to certain associates of the issuing trustee

 (4) This section does not apply to interest paid by the trustee of an eligible unit trust to a person in respect of the debenture or debt interest if, at the time of the payment, the trustee knows, or has reasonable grounds to suspect, that:

 (a) the person is an associate of the trustee; and

 (b) either:

 (i) the associate is a nonresident and the payment is not received by the associate in respect of a debenture or debt interest that the associate acquired in carrying on a business in Australia at or through a permanent establishment of the associate in Australia; or

 (ii) the associate is a resident of Australia and the payment is received by the associate in respect of a debenture or debt interest that the associate acquired in carrying on a business in a country outside Australia at or through a permanent establishment of the associate in that country; and

 (c) the associate does not receive the payment in the capacity of a clearing house, paying agent, custodian, funds manager or responsible entity of a registered scheme.

Debentures or debt interests issued through certain nonresident subsidiaries can also get the exemption

 (5) If:

 (a) the trustee of an eligible unit trust holds all of the issued equity interests in the capital of a company that is not a resident of Australia; and

 (b) the company’s only business is raising finance for the purposes of the eligible unit trust; and

 (c) the company raises finance in a country specified in the regulations (but not Australia) by issuing a debenture or debt interest in that country; and

 (d) when the debenture or debt interest is issued, the company is treated as a resident of that country for the purposes of the tax law (see subsection (8)) of the country;

then this section has effect as if the trustee had raised the finance and issued the debenture or debt interest.

Public offer test

 (6) For the purposes of working out under this section whether the issue of a debenture or debt interest by the trustee of an eligible unit trust satisfies the public offer test, subsections 128F(3) to (5) apply to the trustee of the eligible unit trust in a corresponding way to the way in which those subsections apply to a company, subject to subsection (7) of this section.

 (6A) For the purposes of working out under this section whether an invitation to become a lender under a syndicated loan facility satisfies the public offer test, subsections 128F(3A) and (5AA) apply to the trustee of the eligible unit trust in a corresponding way to the way in which those subsections apply to a company, subject to subsection (7) of this section.

 (7) For the purposes of applying subsection 128F(3), (3A), (4), (5) or (5AA) as mentioned in subsection (6) or (6A) of this section:

 (a) a reference in any of those subsections to a company knowing, suspecting or having reasonable grounds to suspect something, or it being reasonable for a company to have regarded something, is taken to be a reference to the trustee of the eligible unit trust knowing, suspecting or having reasonable grounds to suspect that thing, or it being reasonable for the trustee of the eligible unit trust to have regarded that thing; and

 (b) a reference in any of those subsections to an associate is taken to be a reference to an associate within the meaning of this section; and

 (c) a reference in any of those subsections to a global bond is taken to be a reference to a global bond within the meaning of subsection 128F(10).

 (7A) For the purposes of this section, a change (including by novation) to the lenders under a syndicated loan facility does not result in a different agreement.

Definitions

 (8) In this section:

associate has the meaning given by section 318, except that:

 (a) paragraphs (1)(b), (2)(a) and (4)(a) of that section must be disregarded; and

 (b) subsection (5) of that section applies to a unit trust mentioned in paragraph (b) of the definition of eligible unit trust in this subsection in the same way as that subsection applies in relation to a public unit trust.

clearing house has the same meaning as in section 128F.

company has the same meaning as in section 128F.

debenture:

 (a) in relation to the trustee of an eligible unit trust, includes debenture stock, bonds, promissory and other notes, bills of exchange and any other securities issued by the trustee, whether constituting a charge on the assets of the eligible unit trust or not; and

 (b) in relation to a company, has the same meaning as in section 128F.

eligible unit holder means:

 (a) the trustee of a public unit trust; or

 (b) the trustee (within the meaning of the Income Tax Assessment Act 1997) of a complying superannuation fund that has 50 or more members; or

 (c) the trustee of a pooled superannuation trust within the meaning of the Income Tax Assessment Act 1997; or

 (d) the trustee (within the meaning of the Income Tax Assessment Act 1997) of a complying approved deposit fund; or

 (e) a life insurance company within the meaning of the Income Tax Assessment Act 1997; or

 (f) a public company within the meaning of section 103A; or

 (g) the trustee of a unit trust in which all of the issued units are held by 2 or more entities that are eligible unit holders because of:

 (i) the application of another paragraph of this definition (whether or not the same paragraph); or

 (ii) a previous application of this paragraph; or

 (iii) any combination of subparagraphs (i) and (ii).

eligible unit trust means:

 (a) a public unit trust; or

 (b) a unit trust in which all of the issued units are held by 2 or more eligible unit holders.

public unit trust has the same meaning as in section 102G.

registered scheme has the same meaning as in section 128F.

responsible entity has the same meaning as in section 128F.

syndicated loan has the same meaning as in section 128F.

syndicated loan facility has the same meaning as in section 128F.

tax law has the same meaning as in section 128F.

 (9) For the purposes of this section, a trust or fund of a kind mentioned in any of paragraphs (a) to (d) of the definition of eligible unit holder in subsection (8) in relation to a year of income is taken to be a trust or fund of that kind at all times during the year of income.

128GB  Division not to apply to interest payments on offshore borrowings by offshore banking units

 (1) This section applies to:

 (a) interest paid by a person in respect of an offshore borrowing of the person; or

 (b) interest consisting of gold paid by a person in respect of an offshore gold borrowing of the person;

if, when the borrowing took place, the person was an offshore banking unit (whether or not the person is still an offshore banking unit when the interest is paid).

 (2) Tax is not payable in accordance with this Division in respect of interest to which this section applies.

128NA  Special tax payable in respect of certain securities and agreements

 (1) Where, but for subsection 128AA(2):

 (a) the transferor of a qualifying security who is not liable to pay withholding tax in relation to the transfer of the qualifying security would be liable to pay withholding tax in relation to the transfer; or

 (b) the transferor of a qualifying security who is liable to pay withholding tax in relation to the transfer of the qualifying security would be liable to pay additional withholding tax in relation to the transfer;

then, for the purposes of this section, there shall be taken to be an avoided withholding tax amount in relation to the person who is the transferee of the qualifying security of an amount equal to the withholding tax or the additional withholding tax, as the case may be, that the person would be so liable to pay.

 (2) Where:

 (a) an attributable agreement payment or attributable agreement payments were made by a person under a relevant agreement before the commencement of section 128AC; and

 (b) the Commissioner is of the opinion that the payment or payments were made before the commencement of that section, or that the payment or payments were of a greater amount than they would otherwise have been, for the sole or dominant purpose of securing the result that the total amount (in this subsection referred to as the actual withholding tax) of withholding tax payable under that section in relation to all attributable agreement payments made under the relevant agreement after the commencement of that section would be less than the amount (in this subsection referred to as the notional withholding tax) that would otherwise have been payable;

then, for the purposes of this section, there shall be taken to be an avoided withholding tax amount in relation to the person of an amount equal to the amount by which the notional withholding tax exceeds the actual withholding tax.

 (3) For the purposes of subsection (2), expressions used in that subsection that are also used in section 128AC have the same respective meanings in that subsection as in that section.

 (4) Where there is an avoided withholding tax amount in relation to a person under this section, the person is liable to pay income tax, as imposed by the Income Tax (Securities and Agreements) (Withholding Tax Recoupment) Act 1986, in respect of the avoided withholding tax amount.

128NB  Special tax payable in respect of certain dealings by current and former offshore banking units

 (1) Where a person who is or has been an offshore banking unit transfers to another person an amount of tax exempt loan money or tax exempt gold, other than by way of:

 (a) payment in carrying on an OB activity or what would be an OB activity if the person were an OBU; or

 (b) repayment of an offshore borrowing or offshore gold borrowing;

the person is liable to pay income tax, as imposed by the Income Tax (Offshore Banking Units) (Withholding Tax Recoupment) Act 1988, on the lost withholding tax amount in respect of the transfer.

 (2) For the purposes of subsection (1), the lost withholding tax amount in respect of the transfer is an amount ascertained in accordance with the formula:

where:

IWT rate is the rate declared by the Parliament in respect of income to which subsection 128B(5) applies.

PB rate is the prevailing borrowing rate in relation to the person at the time of the transfer.

PB term is the number of years in the prevailing borrowing term in relation to the person at the time of the transfer; and

TA is the amount of tax exempt loan money or tax exempt gold transferred.

 (3) Tax under this section is due and payable by the person liable to pay the tax at the end of:

 (a) 21 days after the end of the month in which the transfer to which it relates takes place; or

 (b) such further period as the Commissioner, in special circumstances, allows.

Application

 (3A) The Commissioner must not exercise his or her power under paragraph (3)(b) on or after 1 July 2000.

Note: For provisions about collection and recovery of tax on or after 1 July 2000, see Part 415 in Schedule 1 to the Taxation Administration Act 1953.

 (4) Section 128C (other than subsections (1) and (4AA)) applies, in addition to its application apart from this subsection, as if references in that section to withholding tax were references to tax payable under this section.

 (5) The Commissioner may remit the whole or part of an amount of tax payable under this section in relation to the transfer of an amount of tax exempt loan money or tax exempt gold to another person if:

 (a) the Commissioner is satisfied that:

 (i) the liability to pay the amount of tax arose because the person mistakenly believed, on reasonable grounds, that the other person was a nonresident or an offshore banking unit, that interest payable to the person in respect of the amount transferred would be an outgoing of a particular kind or that the amount transferred was not tax exempt loan money or tax exempt gold; and

 (ii) the person had taken reasonable steps to ascertain the matter to which the mistaken belief related; or

 (b) the Commissioner is satisfied that there are special circumstances justifying the remission of the whole or part of the amount of tax.

128NBA  Credits in respect of amounts assessed in relation to certain financial arrangements

When section applies

 (1) This section applies if:

 (a) the amount of any withholding tax that has become payable by a taxpayer on a payment of interest under, or in relation to the transfer of, a qualifying security or a Division 230 financial arrangement has been paid; and

 (b) there is a net financial arrangement amount (see subsection (5)) in relation to the taxpayer in relation to:

 (i) if the payment of interest is a payment in relation to the transfer of the qualifying security—the security; or

 (ii) if the payment of interest is such a payment by virtue of the application of section 128AC in relation to an attributable agreement payment within the meaning of that section—the attributable agreement payment; or

 (iii) in any other case—the payment of interest; and

 (c) the amount of the withholding tax payable on the interest exceeds the amount that would have been payable on the interest if the interest were reduced by the net financial arrangement amount.

Entitlement to apply for credit

 (2) The taxpayer may apply to the Commissioner for a credit of an amount equal to the excess.

Requirements for application

 (3) The application must be in the approved form.

Entitlement to credit

 (4) If the Commissioner is satisfied as to the matters mentioned in paragraphs (1)(a), (b) and (c), the applicant is entitled to a credit of an amount equal to the excess.

Net financial arrangement amount

 (5) For the purposes of this section, if:

 (a) in the case of a qualifying security—the sum of all amounts (if any) included in the assessable income of the taxpayer of any years of income in relation to the qualifying security, attributable agreement payment or payment of interest under section 159GQ; or

 (b) in the case of a Division 230 financial arrangement—the sum of all amounts (if any) included in the assessable income of the taxpayer of any years of income in relation to the arrangement under Division 230 of the Income Tax Assessment Act 1997;

exceeds:

 (c) in the case of a qualifying security—the sum of all amounts (if any) allowable as deductions from the assessable income of the taxpayer of any years of income in relation to the security or the payment, as the case may be, under that section; or

 (d) in the case of a Division 230 financial arrangement—the sum of:

 (i) all amounts (if any) allowable as deductions from the assessable income of the taxpayer of any years of income in relation to the arrangement under Division 230 of the Income Tax Assessment Act 1997; and

 (ii) all amounts (if any) of interest paid under the arrangement before the interest mentioned in paragraph (1)(a) is paid;

there is a net financial arrangement amount equal to the excess.

 (6) For the purposes of paragraph (5)(b) and subparagraph (5)(d)(i), disregard any year of income in which the taxpayer was not an
Australian resident.

 (7) For the purposes of subsection (6):

 (a) if section 230485 of the Income Tax Assessment Act 1997 applies in relation to a year of income:

 (i) treat the foreign residency period mentioned in that section as a year of income in which the taxpayer was not an Australian resident; and

 (ii) treat the Australian residency period mentioned in that section as a year of income in which the taxpayer was an Australian resident; and

 (b) if section 230490 of that Act applies in relation to a year of income:

 (i) treat the period during that year in which the taxpayer was not an Australian resident as a year of income in which the taxpayer was not an Australian resident; and

 (ii) treat the period during that year in which the taxpayer was an Australian resident as a year of income in which the taxpayer was an Australian resident.

128P  Objections

  If an applicant for a certificate under this Division is dissatisfied with a decision of the Commissioner:

 (a) in any case—to refuse to issue the certificate; or

 (b) in the case of a certificate under section 128AB—to specify a particular amount in the certificate;

the applicant may object against the decision in the manner set out in Part IVC of the Taxation Administration Act 1953.

128Q  Power of Commissioner to obtain information

  Section 264 applies, for the purposes of this Division, as if the reference in paragraph (1)(b) of that section to a person’s income or assessment were a reference to a matter relevant to the administration or operation of this Division.

128R  Informal arrangements

  For the purposes of this Division, the Commissioner may have regard to arrangements, understandings and practices not having legal force in the same manner as if they had legal force.


Division 11BEquity investments in smallmedium enterprises

128TG  Summary of this Division

 (1) The following is a summary of this Division.

 (2) If, in connection with a moneylending business, a taxpayer is issued shares in a smallmedium enterprise, any profit or loss the taxpayer makes when it disposes of certain shares that would be dealt with under section 65 or 81 of the Income Tax Assessment Act 1997 is, to the extent that it relates to the period after the issue, instead dealt with under Parts 31 and 33 (about CGT) of the Income Tax Assessment Act 1997.

 (3) For this to apply, the taxpayer must, after the issue, hold shares representing at least 10% of the value of the smallmedium enterprise.

128TH  When Division applies

  This Division applies if:

 (a) a taxpayer acquires a threshold interest in an SME (see section 128TJ); and

 (b) afterwards, the taxpayer disposes of ordinary shares, or an interest in ordinary shares, in the SME that were issued to the taxpayer (whether before, at the time of, or after acquiring the threshold interest); and

 (ba) the disposal takes place:

 (i) in any case—in the course of the taxpayer carrying on a business of lending money or otherwise in connection with such a business of the taxpayer; or

 (ii) if the taxpayer is a company that is a subsidiary of another company—while the one or more members of the direct ownership group of the taxpayer (see subsection 128TL(3)) are each carrying on a business of lending money; and

 (c) the shares are not trading stock of the taxpayer; and

 (d) apart from this section:

 (i) any profit on the disposal would be included in the taxpayer’s assessable income of a year of income under section 65 of the Income Tax Assessment Act 1997; and

 (ii) any loss on the disposal would be allowable as a deduction from the taxpayer’s assessable income of a year of income under section 81 of that Act.

128TI  Consequences of Division applying

  If this Division applies:

 (a) no profit on the disposal is included in the taxpayer’s assessable income of any year of income under section 65 of the Income Tax Assessment Act 1997; and

 (b) no loss on the disposal is allowable as a deduction from the taxpayer’s assessable income of any year of income under section 81 of that Act; and

 (c) the taxpayer is taken:

 (i) to have disposed of the shares, at the time of acquiring the threshold interest in the SME, for a consideration equal to their market value at the time; and

 (ii) to have reacquired the shares immediately afterwards (for the purposes of this section, as if they had been issued to the taxpayer) for an amount equal to that consideration; and

 (d) any profit or loss on the disposal that is taken to have happened by subparagraph (c)(i) is included in the taxpayer’s assessable income under section 65 of that Act, or is an allowable deduction under section 81 of that Act, in the year of income in which the shares are actually (disregarding that subparagraph) disposed of, and not in any other year of income.

Note: As a result of this section, the tax consequences of the actual disposal will be dealt with under section 65 or 81 of that Act in respect of any period of holding before the acquisition of the threshold interest and under Parts 31 and 33 (about CGT) of the Income Tax Assessment Act 1997 in respect of any period after the acquisition of that interest.

128TJ  Acquiring a threshold interest in an SME

  A taxpayer acquires a threshold interest in an SME if:

 (a) ordinary shares in an SME (see section 128TK) are issued to the taxpayer; and

 (b) the shares are issued:

 (i) in any case—in the course of the taxpayer carrying on a business of lending money or otherwise in connection with such a business of the taxpayer; or

 (ii) if the taxpayer is a company that is a subsidiary of another company—while the one or more members of the direct ownership group of the taxpayer (see subsection 128TL(3)) are each carrying on a business of lending money; and

 (c) immediately after the shares, and any other ordinary shares forming part of the same issue, are issued to the taxpayer and any other persons, the percentage of the value of the SME represented by ordinary shares issued to the taxpayer (whether before or as part of the threshold share issue) is at least 10%; and

 (d) no previous issue of shares to the taxpayer had resulted in the taxpayer acquiring a threshold interest in the SME.

128TK  SME or smallmedium enterprise

 (1) An SME or smallmedium enterprise is a company the total value of whose assets, as determined under this section, is no more than $50 million.

 (2) The total value of the company’s assets is the total value of its assets (both current and noncurrent) as shown in the last audited accounts prepared in relation to the company for the purposes of Division 4 of Part 3.6 of the Corporations Act 2001 before the investment is made.

 (3) If:

 (a) no such audited accounts have been prepared within the 12 months ending when the shares are issued; or

 (b) the last such audited accounts prepared relate to a period that ended more than 18 months before the shares are issued;

then the company is not an SME unless:

 (c) before the shares are issued, the taxpayer gets an audited statement (see subsection (4)) showing the total value of the company’s assets as at a time no more than 12 months before the shares are issued; and

 (d) that value is no more than $50 million.

 (4) In subsection (3), an audited statement is a statement audited by a person or firm:

 (a) who is appointed as the company’s auditor in accordance with the Corporations Act 2001; or

 (b) who is eligible to consent to being so appointed.

128TL  Subsidiary and direct ownership group

 (1) A company (the first company) is a subsidiary of another company (the second company) if all the shares in the first company are beneficially owned by:

 (a) the second company; or

 (b) a company that is, or 2 or more companies each of which is, a subsidiary of the second company; or

 (c) the second company and a company that is, or 2 or more companies each of which is, a subsidiary of the second company.

 (2) For the purposes of subsection (1), if a company is a subsidiary of another company (including a company that is such a subsidiary because of a previous application or applications of this subsection), every company that is a subsidiary of the firstmentioned company is taken to be a subsidiary of that other company.

 (3) The one or more companies in whichever of paragraph (1)(a), (b) or (c) applies are the direct ownership group of the first company.


Division 11CPayments in respect of mining operations on Aboriginal land

128U  Interpretation

 (1) In this Division, unless the contrary intention appears:

Aboriginal means a person who is:

 (a) a member of the Aboriginal race of Australia; or

 (b) a member of the race to which Torres Strait Islanders belong.

Aboriginal land means any estate or interest in land that, under provisions of a law of the Commonwealth or of a State or Territory that relate to Aboriginals, is held for the use or benefit of Aboriginals.

Aboriginals Benefit Account means the Aboriginals Benefit Account continued in existence by section 62 of the Aboriginal Land Rights (Northern Territory) Act 1976.

distributing body means:

 (a) an Aboriginal Land Council established by or under the Aboriginal Land Rights (Northern Territory) Act 1976;

 (b) a corporation registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006; or

 (d) any other incorporated body that:

 (i) is established by or under provisions of a law of the Commonwealth or of a State or Territory that relate to Aboriginals; and

 (ii) is empowered or required (whether under that law or otherwise) to pay moneys received by the body to Aboriginals or to apply such moneys for the benefit of Aboriginals, either directly or indirectly.

mineral royalties means royalties payable in respect of the mining of minerals.

minerals means:

 (a) gold, silver, copper, tin and other metals;

 (b) coal, shale, petroleum (within the meaning of the Income Tax Assessment Act 1997) and valuable earths and substances;

 (c) mineral substances;

 (d) gems and precious stones; and

 (e) ores and other substances containing minerals;

whether suspended in water or not, and includes water.

miner’s right means a miner’s right or other authority issued or granted under a law of the Commonwealth or of a State or Territory relating to mining of minerals, being a right or authority that empowers the holders to take possession of, mine or occupy land or take any other action in relation to land for any purpose in connection with mining.

mining includes the obtaining of minerals from alluvial or surface deposits.

mining interests, in relation to any land, means any lease or other interest in the land (including a right to prospect or explore for minerals in or on the land) issued or granted under a law of the Commonwealth or of a State or Territory relating to mining of minerals.

mining payment means a payment made to a distributing body or made to, or applied for the benefit of, an Aboriginal or Aboriginals, being:

 (a) a payment made on or after 1 July 1979 and before the day that the Financial Management Legislation Amendment Act 1999 commenced, out of the Aboriginals Benefit Reserve to the extent that the payment represents money paid into the Aboriginals Benefit Reserve on or after 1 July 1979 in pursuance of subsection 63(2) or (4) of the Aboriginal Land Rights (Northern Territory) Act 1976; and

 (aa) a payment made on or after the day that the Financial Management Legislation Amendment Act 1999 commenced by the Commonwealth in respect of a debit from the Aboriginals Benefit Account to the extent that the payment represents an amount credited to the Aboriginals Benefit Account in pursuance of subsection 63(1) or (4) of the Aboriginal Land Rights (Northern Territory) Act 1976; and

 (b) any payment made on or after 1 July 1979 that is of the kind referred to in subsection 44 (1) or (2) of the Aboriginal Land Rights (Northern Territory) Act 1976; and

 (c) any other payment made on or after 1 July 1979 under provisions of a law of the Commonwealth or of a State or Territory that relate to Aboriginals or under an agreement made in accordance with such provisions, being a payment made:

 (i) in consideration of the issuing, granting or renewal of a miner’s right or mining interest in respect of Aboriginal land;

 (ii) in consideration of the granting of permission to a person to enter or remain on Aboriginal land or to do any act on Aboriginal land in relation to prospecting or exploring for, or mining of, minerals; or

 (iii) by way of payment of mineral royalties payable in respect of the mining of minerals on Aboriginal land or by way of payment of an amount determined by reference to an amount of mineral royalties received by the Commonwealth, a State or the Northern Territory in respect of the mining of minerals on Aboriginal land;

but does not include a payment made by a distributing body.

 (2) In section 260, income tax or tax includes mining withholding tax.

 (3) For the purposes of this Division, a mining payment is taken to include any amount that has been, or purports to have been, withheld from the mining payment for the purposes of section 12320 in Schedule 1 to the Taxation Administration Act 1953.

 (4) For the purposes of the succeeding provisions of this Division, where a mining payment (in this subsection referred to as the relevant mining payment) is made to, or applied for the benefit of, 2 or more persons, there shall be deemed to have been made to, or applied for the benefit of, each of those persons, a mining payment of an amount equal to so much of the relevant mining payment as bears to the relevant mining payment the same proportion as 1 bears to the number of persons to whom the relevant mining payment was made or for whose benefit the relevant mining payment was applied, as the case may be.

128V  Liability to mining withholding tax

 (1) Where a mining payment is made to, or applied for the benefit of, a person, that person is liable to pay income tax on the amount of the mining payment at the rate declared by the Parliament for the purposes of this section.

 (2) Income tax payable by a person in accordance with this section is in addition to other income tax payable by that person upon amounts that are not mining payments.

128W  Payment of mining withholding tax

 (1) Mining withholding tax is due and payable by a person liable to pay the tax at the expiration of 21 days after the end of the month in which the payment of the amount to which the tax relates was made, or of such further period as the Commissioner, in special circumstances, allows.

Note: For provisions about collection and recovery of mining withholding tax and other amounts, see Part 415 in Schedule 1 to the Taxation Administration Act 1953.

 (4) The ascertainment of the amount of any mining withholding tax shall not be deemed to be an assessment within the meaning of any of the provisions of this Act.

 (5) The Commissioner may serve on a person liable to pay mining withholding tax, by post or otherwise, a notice in which is specified:

 (a) the amount of any mining withholding tax that the Commissioner has ascertained is payable by that person; and

 (b) the date on which that tax became due and payable.

 (6) The production of a notice served under subsection (5), or of a document under the hand of the Commissioner, a Second Commissioner or a Deputy Commissioner purporting to be a copy of such a notice, is evidence that the amount of mining withholding tax specified in the notice became due and payable by the person on whom the notice was served on the date specified in the notice as the date on which that tax became due and payable.

128X  Power of Commissioner to obtain information

  Section 264 applies, for the purposes of this Division, as if the reference in paragraph (1)(b) of that section to a person’s income or assessment were a reference to a matter relevant to the administration or operation of this Division.


Division 12Oversea ships

129  Taxable income of shipowner or charterer

  Where a ship belonging to or chartered by a person whose principal place of business is out of Australia carries passengers, livestock, mails or goods shipped in Australia, 5% of the amount paid or payable to him or her in respect of such carriage, whether that amount is payable in or out of Australia, shall be deemed to be taxable income derived by him or her in Australia.

130  Master or agent to make return

  The master of the ship, or the agent or other representative in Australia of the owner or charterer, shall, when called upon by the Commissioner by notice in the Gazette or by any other notice to him or her, make a return of the amounts so paid or payable.

131  Determination by Commissioner

  If such return is not made, or if the Commissioner is not satisfied with the return, the Commissioner may determine the amount so paid or payable.

132  Assessment of tax

  The master, agent or representative, as agent for the owner or charterer, may be assessed upon the taxable income and shall be liable to pay the tax assessed.

133  Master liable to pay

 (1) Where the assessment is made on the agent or representative, and the tax is not paid forthwith upon receipt of notice of the assessment, the master shall be liable to pay the tax.

 (2) This section shall not, so long as any tax for which the master becomes liable under this section remains unpaid, relieve any other person to whom the notice of assessment has been given in respect of that tax, from liability to pay the tax remaining unpaid.

134  Notice of assessment

  Where any person is liable to pay tax under this Division, the Commissioner shall give notice to the person of the assessment, and he or she shall forthwith pay the tax.

135  Clearance of ship

  A collector or officer of customs for any State or Territory shall not grant a clearance to the ship until he or she is satisfied that any tax which has been or may be assessed under this Division has been paid, or that arrangements for its payment have been made to the satisfaction of the Commissioner.

135A  Freights payable under certain agreements

  Where goods are shipped in pursuance of an agreement of the kind specified in section 7C of the Australian Industries Preservation Act 19061937, the amount paid or payable to the owner or charterer of the ship in respect of the carriage of those goods shall, for the purposes of this Division, be deemed to be the amount remaining after deducting from the amount which would be payable according to the gross rate of freight specified in the agreement the amount of any rebate allowed in pursuance of the agreement or any payment, whenever made, by the owner or charterer, or out of funds provided by the owner or charterer, to any person or persons being the owner or shipper of the goods or the agent of either of them in respect of the shipment.


Division 13International agreements and determination of source of certain income

136AA  Interpretation

 (1) In this Division, unless the contrary intention appears:

acquire includes:

 (a) acquire by way of purchase, exchange, lease, hire or hirepurchase; and

 (b) obtain, gain or receive.

agreement means any agreement, arrangement, transaction, understanding or scheme, whether formal or informal, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings.

area covered by an international tax sharing treaty has the meaning given by subsection (4).

derive includes gain or produce.

expenditure includes loss or outgoing.

income includes any amount that is, or may be, included in assessable income or taken into account in calculating an amount that is, or may be, included in assessable income.

permanent establishment, in relation to a taxpayer, means:

 (a) a place that is a permanent establishment of the taxpayer by virtue of the definition of permanent establishment in section 6; or

 (b) a place at which any property of the taxpayer is manufactured or processed for the taxpayer, whether by the taxpayer or another person.

property includes:

 (a) a chose in action;

 (b) any estate, interest, right or power, whether at law or in equity, in or over property;

 (c) any right to receive income; and

 (d) services.

right to receive income means a right of a person to have income that will or may be derived (whether from property or otherwise) paid to, or applied or accumulated for the benefit of, the person.

services includes any rights, benefits, privileges or facilities and, without limiting the generality of the foregoing, includes the rights, benefits, privileges or facilities that are, or are to be, provided, granted or conferred under:

 (a) an agreement for or in relation to:

 (i) the performance of work (including work of a professional nature);

 (ii) the provision of, or the use or enjoyment of facilities for, amusement, entertainment, recreation or instruction;

 (iii) the conferring of rights, benefits or privileges for which consideration is payable in the form of a royalty, tribute, levy or similar exaction; or

 (iv) the carriage, storage or packaging of any property or the doing of any other act in relation to property;

 (b) an agreement of insurance;

 (c) an agreement between a banker and a customer of the banker entered into in the course of the carrying on by the banker of the business of banking; or

 (d) an agreement for or in relation to the lending of moneys.

supply includes:

 (a) supply by way of sale, exchange, lease, hire or hirepurchase; and

 (b) provide, grant or confer.

taxpayer includes a partnership and a taxpayer in the capacity of a trustee.

 (2) The definition of taxpayer in subsection (1) shall not be taken to affect in any way the interpretation of that expression where it is used in this Act other than this Division.

 (3) In this Division, unless the contrary intention appears:

 (a) a reference to the supply or acquisition of property includes a reference to agreeing to supply or acquire property;

 (b) a reference to consideration includes a reference to property supplied or acquired as consideration and a reference to the amount of any such consideration is a reference to the value of the property;

 (c) a reference to the arm’s length consideration in respect of the supply of property is a reference to the consideration that might reasonably be expected to have been received or receivable as consideration in respect of the supply if the property had been supplied under an agreement between independent parties dealing at arm’s length with each other in relation to the supply;

 (d) a reference to the arm’s length consideration in respect of the acquisition of property is a reference to the consideration that might reasonably be expected to have been given or agreed to be given in respect of the acquisition if the property had been acquired under an agreement between independent parties dealing at arm’s length with each other in relation to the acquisition; and

 (e) a reference to the supply or acquisition of property under an agreement includes a reference to the supply or acquisition of property in connection with an agreement.

 (4) If, under an international tax sharing treaty, Australia and another country share tax revenues from activities undertaken in an area identified by or under the agreement, that area is referred to in this Division as the area covered by the international tax sharing treaty.

136AB  Operation of Division

 (1) Nothing in the provisions of this Act other than this Division shall be taken to limit the operation of this Division.

Note: This Division is subject to Subdivision 815A of the Income Tax Assessment Act 1997 (about crossborder transfer pricing): see section 81540 of that Act.

 (2) In the application of this Division, the operation of sections 7020, 42020 and 42030 of the Income Tax Assessment Act 1997, and of section 355400 of that Act, shall be disregarded.

136AC  International agreements

  For the purposes of this Division, an agreement is an international agreement if:

 (a) a nonresident supplied or acquired property under the agreement otherwise than in connection with a business carried on in Australia by the nonresident at or through a permanent establishment of the nonresident in Australia; or

 (b) a resident carrying on a business outside Australia supplied or acquired property under the agreement, being property supplied or acquired in connection with that business; or

 (c) a taxpayer:

 (i) supplied or acquired property under the agreement in connection with a business; and

 (ii) carries on that business in an area covered by an international tax sharing treaty.

136AD  Arm’s length consideration deemed to be received or given

 (1) Where:

 (a) a taxpayer has supplied property under an international agreement;

 (b) the Commissioner, having regard to any connection between any 2 or more of the parties to the agreement or to any other relevant circumstances, is satisfied that the parties to the agreement, or any 2 or more of those parties, were not dealing at arm’s length with each other in relation to the supply;

 (c) consideration was received or receivable by the taxpayer in respect of the supply but the amount of that consideration was less than the arm’s length consideration in respect of the supply; and

 (d) the Commissioner determines that this subsection should apply in relation to the taxpayer in relation to the supply;

then, for all purposes of the application of this Act in relation to the taxpayer, consideration equal to the arm’s length consideration in respect of the supply shall be deemed to be the consideration received or receivable by the taxpayer in respect of the supply.

 (2) Where:

 (a) a taxpayer has supplied property under an international agreement;

 (b) the Commissioner, having regard to any connection between any 2 or more of the parties to the agreement or to any other relevant circumstances, is satisfied that the parties to the agreement, or any 2 or more of those parties, were not dealing at arm’s length with each other in relation to the supply;

 (c) no consideration was received or receivable by the taxpayer in respect of the supply; and

 (d) the Commissioner determines that this subsection should apply in relation to the taxpayer in relation to the supply;

then, for all purposes of the application of this Act in relation to the taxpayer, consideration equal to the arm’s length consideration in respect of the supply shall be deemed to have been received and receivable by the taxpayer in respect of the supply at the time when the property was supplied or, as the case requires, any of the property was first supplied, or at such later time or times as the Commissioner considers appropriate.

 (3) Where:

 (a) a taxpayer has acquired property under an international agreement;

 (b) the Commissioner, having regard to any connection between any 2 or more of the parties to the agreement or to any other relevant circumstances, is satisfied that the parties to the agreement, or any 2 or more of those parties, were not dealing at arm’s length with each other in relation to the acquisition;

 (c) the taxpayer gave or agreed to give consideration in respect of the acquisition and the amount of that consideration exceeded the arm’s length consideration in respect of the acquisition; and

 (d) the Commissioner determines that this subsection should apply in relation to the taxpayer in relation to the acquisition;

then, for all purposes of the application of this Act in relation to the taxpayer, consideration equal to the arm’s length consideration in respect of the acquisition shall be deemed to be the consideration given or agreed to be given by the taxpayer in respect of the acquisition.

 (4) For the purposes of this section, where, for any reason (including an insufficiency of information available to the Commissioner), it is not possible or not practicable for the Commissioner to ascertain the arm’s length consideration in respect of the supply or acquisition of property, the arm’s length consideration in respect of the supply or acquisition shall be deemed to be such amount as the Commissioner determines.

136AE  Determination of source of income etc.

 (1) Where:

 (a) by the application of section 136AD in relation to a taxpayer other than a partnership or trustee, the arm’s length consideration in respect of the supply or acquisition of property by the taxpayer is deemed to have been received or receivable or received and receivable, or to have been given or agreed to be given, as the case may be; and

 (b) a question arises whether, and if so, as to the extent to which:

 (i) any income, being that consideration, is derived by the taxpayer from sources in Australia or sources out of Australia;

 (ii) any income in the calculation of which that consideration is taken into account is derived by the taxpayer from sources in Australia or sources out of Australia; or

 (iii) that consideration is expenditure incurred by the taxpayer in deriving income from sources in Australia or sources out of Australia;

the income or expenditure shall be deemed, for all purposes of this Act, to have been derived or to have been incurred in deriving income, as the case may be, from such source, or from such sources and in such proportions, as the Commissioner determines.

 (2) Where:

 (a) by the application of section 136AD in relation to a taxpayer being a partnership, the arm’s length consideration in respect of the supply or acquisition of property by the taxpayer is deemed to have been received or receivable or received and receivable, or to have been given or agreed to be given, as the case may be; and

 (b) in determining the net income, exempt income or partnership loss of the taxpayer or the extent to which the individual interest of a partner in the net income, exempt income or partnership loss of the taxpayer is attributable to sources in Australia, a question arises whether, and if so, as to the extent to which:

 (i) any income, being that consideration, is derived by the taxpayer from sources in Australia or sources out of Australia;

 (ii) any income in the calculation of which that consideration is taken into account is derived by the taxpayer from sources in Australia or sources out of Australia; or

 (iii) that consideration is expenditure incurred by the taxpayer in deriving income from sources in Australia or sources out of Australia;

the income or expenditure shall be deemed, for all purposes of this Act, to have been derived or to have been incurred in deriving income, as the case may be, from such source, or from such sources and in such proportions, as the Commissioner determines.

 (3) Where:

 (a) by the application of section 136AD in relation to a taxpayer being the trustee of a trust estate, the arm’s length consideration in respect of the supply or acquisition of property by the taxpayer is deemed to have been received or receivable or received and receivable, or to have been given or agreed to be given, as the case may be; and

 (b) in determining the net income or exempt income of the trust estate or the extent to which the share of a beneficiary of the net income or exempt income of the trust estate is attributable to sources in Australia, a question arises whether, and if so, as to the extent to which:

 (i) any income, being that consideration, is derived by the taxpayer from sources in Australia or sources out of Australia;

 (ii) any income in the calculation of which that consideration is taken into account is derived by the taxpayer from sources in Australia or sources out of Australia; or

 (iii) that consideration is expenditure incurred by the taxpayer in deriving income from sources in Australia or sources out of Australia;

the income or expenditure shall be deemed, for all purposes of this Act, to have been derived or to have been incurred in deriving income, as the case may be, from such source, or from such sources and in such proportions, as the Commissioner determines.

 (4) Where:

 (a) a taxpayer (other than a partnership or trustee):

 (i) is a resident and carries on a business in a country other than Australia at or through a permanent establishment of the taxpayer in that other country; or

 (ii) is a resident and carries on a business in an area covered by an international tax sharing treaty; or

 (iii) is a nonresident and carries on a business in Australia at or through a permanent establishment of the taxpayer in Australia; or

 (iv) is a nonresident and carries on a business in an area covered by an international tax sharing treaty and also carries on a business somewhere else in Australia at or through a permanent establishment of the taxpayer in Australia; and

 (b) a question arises whether, and if so, as to the extent to which:

 (i) any income derived by the taxpayer is derived from sources in Australia or sources out of Australia; or

 (ii) any expenditure incurred by the taxpayer is incurred in deriving income from sources in Australia or sources out of Australia;

 (c) none of the preceding provisions of this section applies in relation to the determination of that question;

 (d) that question, if determined on the basis of the return furnished by the taxpayer, would have a tax result more favourable to the taxpayer than the result that would occur if that question were determined in accordance with this subsection; and

 (e) in the Commissioner’s opinion, the derivation of the income or the incurring of the expenditure is attributable, in whole or in part, to activities carried on by the taxpayer:

 (i) at or through the permanent establishment that is referred to in subparagraph (a)(i) or (iii); or

 (ii) in the area covered by the international tax sharing treaty that is referred to in paragraph (a)(ii) or (iv);

the income or expenditure shall be deemed, for all purposes of this Act, to have been derived or to have been incurred in deriving income, as the case may be, from such source, or from such sources and in such proportions, as the Commissioner determines.

 (5) Where:

 (a) a taxpayer:

 (i) is a partnership and carries on a business in a country other than Australia at or through a permanent establishment of the taxpayer in that other country; or

 (ii) is a partnership and carries on a business in an area covered by an international tax sharing treaty; or

 (iii) carries on a business in Australia at or through a permanent establishment of the taxpayer in Australia and is a partnership in which any of the partners is a nonresident; or

 (iv) carries on a business in an area covered by an international tax sharing treaty and also carries on a business somewhere else in Australia at or through a permanent establishment of the taxpayer in Australia and is a partnership in which any of the partners is a nonresident; and

 (b) in determining the net income, exempt income or partnership loss of the taxpayer or the extent to which the individual interest of a partner in the net income, exempt income or partnership loss of the taxpayer is attributable to sources in Australia, a question arises whether, and if so, as to the extent to which:

 (i) any income derived by the taxpayer is derived from sources in Australia or sources out of Australia; or

 (ii) any expenditure incurred by the taxpayer is incurred in deriving income from sources in Australia or sources out of Australia;

 (c) none of the preceding provisions of this section applies in relation to the determination of that question;

 (d) that question, if determined on the basis of the return furnished by the taxpayer, would have a tax result more favourable to a taxpayer than the result that would occur if that question were determined in accordance with this subsection; and

 (e) in the Commissioner’s opinion, the derivation of the income or the incurring of the expenditure is attributable, in whole or in part, to activities carried on by the taxpayer:

 (i) at or through the permanent establishment that is referred to in subparagraph (a)(i) or (iii); or

 (ii) in the area covered by the international tax sharing treaty that is referred to in paragraph (a)(ii) or (iv);

the income or expenditure shall be deemed, for all purposes of this Act, to have been derived or to have been incurred in deriving income, as the case may be, from such source, or from such sources and in such proportions, as the Commissioner determines.

 (6) Where:

 (a) a taxpayer:

 (i) is the trustee of a trust estate and carries on a business in a country other than Australia at or through a permanent establishment of the taxpayer in that other country; or

 (ii) is the trustee of a trust estate and carries on a business in an area covered by an international tax sharing treaty; or

 (iii) carries on a business in Australia at or through a permanent establishment of the taxpayer in Australia and is the trustee of a trust estate of which any of the beneficiaries is a nonresident; or

 (iv) carries on a business in an area covered by an international tax sharing treaty and also carries on a business somewhere else in Australia at or through a permanent establishment of the taxpayer in Australia and is the trustee of a trust estate of which any of the beneficiaries is a nonresident; and

 (b) in determining the net income or exempt income of the trust estate or the extent to which the share of a beneficiary of the net income or exempt income of the trust estate is attributable to sources in Australia, a question arises whether, and if so, as to the extent to which:

 (i) any income derived by the taxpayer is derived from sources in Australia or sources out of Australia; or

 (ii) any expenditure incurred by the taxpayer is incurred in deriving income from sources in Australia or sources out of Australia;

 (c) none of the preceding provisions of this section applies in relation to the determination of that question;

 (d) that question, if determined on the basis of the return furnished by the taxpayer, would have a tax result more favourable to a taxpayer than the result that would occur if that question were determined in accordance with this subsection; and

 (e) in the Commissioner’s opinion, the derivation of the income or the incurring of the expenditure is attributable, in whole or in part, to activities carried on by the taxpayer:

 (i) at or through the permanent establishment that is referred to in subparagraph (a)(i) or (iii); or

 (ii) in the area covered by the international tax sharing treaty that is referred to in paragraph (a)(ii) or (iv);

the income or expenditure shall be deemed, for all purposes of this Act, to have been derived or to have been incurred in deriving income, as the case may be, from such source, or such sources and in such proportions, as the Commissioner determines.

 (7) In the application of the preceding provisions of this section in determining the source or sources of any income derived by a taxpayer or the extent to which expenditure incurred by the taxpayer was incurred in deriving income from a particular source or sources, the Commissioner shall have regard to:

 (a) the nature and extent of any relevant business carried on by the taxpayer and the place or places at which the business is carried on;

 (b) if any relevant business carried on by the taxpayer is carried on at or through a permanent establishment—the circumstances that would have, or might reasonably be expected to have, existed if the permanent establishment were a distinct and separate entity dealing at arm’s length with the taxpayer and other persons; and

 (c) such other matters as the Commissioner considers relevant.

 (8) A reference in this section to expenditure incurred by a taxpayer in deriving income includes a reference to expenditure incurred by the taxpayer in carrying on a business for the purpose of deriving income.

 (8A) In this section:

 (a) a reference to income being derived from a source in Australia is to be read as including a separate reference to income being derived from a source in an area in Australia that is covered by an international tax sharing treaty; and

 (b) a reference to expenditure being incurred in deriving income from a source in Australia is to be read as including a separate reference to expenditure being incurred in deriving income from a source in an area in Australia that is covered by an international tax sharing treaty.

Note: This means that the following are the 3 different kinds of sources referred to in this section:

(a) a source in Australia (but not in an area covered by an international tax sharing treaty);

(b) a source in an area in Australia that is covered by an international tax sharing treaty;

(c) a source out of Australia.

136AF  Consequential adjustments to assessable income and allowable deductions

 (1) Where, by reason of the application of section 136AD in relation to the supply or acquisition of property by a taxpayer, an amount is included in the assessable income of the taxpayer of a year of income or a deduction is not allowable or is not, in part, allowable, to the taxpayer in respect of a year of income, the Commissioner may, in relation to any taxpayer (in this subsection referred to as the relevant taxpayer):

 (a) if, in the opinion of the Commissioner:

 (i) there has been included, or would but for this subsection be included, in the assessable income of the relevant taxpayer of a year of income an amount that would not have been included or would not be included, as the case may be, in the assessable income of the relevant taxpayer of that year of income if the property had been supplied or acquired, as the case may be, under an agreement between independent parties dealing at arm’s length with each other in relation to the supply or acquisition; and

 (ii) it is fair and reasonable that that amount or a part of that amount should not be included in the assessable income of the relevant taxpayer of that year of income;

  determine that that amount or that part of that amount, as the case may be, should not have been included or shall not be included, as the case may be, in the assessable income of the relevant taxpayer of that year of income; and

 (b) if, in the opinion of the Commissioner:

 (i) an amount would have been allowed or would be allowable to the relevant taxpayer as a deduction in relation to a year of income if the property had been supplied or acquired, as the case may be, under an agreement between independent parties dealing at arm’s length with each other in relation to the supply or acquisition, being an amount that was not allowed or would not, but for this subsection, be allowable, as the case may be, as a deduction to the relevant taxpayer in relation to that year of income; and

 (ii) it is fair and reasonable that that amount or a part of that amount should be allowable as a deduction to the relevant taxpayer in relation to that year of income;

  determine that that amount or that part of that amount, as the case may be, should have been allowed or shall be allowable, as the case may be, as a deduction to the relevant taxpayer in relation to that year of income;

and the Commissioner shall take such action as the Commissioner considers necessary to give effect to any such determination.

 (1A) Subsection (1) also has the effect that it would have if the reference in that subsection to the application of section 136AD in relation to a taxpayer included references to:

 (a) the application of section 136AD in accordance with section 102AAZA for the purpose of calculating the attributable income of a trust estate; and

 (b) the application of section 136AD in accordance with section 400 for the purpose of calculating the attributable income of a CFC.

 (2) Where the Commissioner makes a determination under subsection (1) by virtue of which an amount is allowed as a deduction to a taxpayer in relation to a year of income, that amount shall be deemed to be so allowed as a deduction by virtue of such provision of this Act as the Commissioner determines.

 (3) Where:

 (a) by reason of the application of section 136AD in relation to the supply or acquisition of property by a taxpayer, an amount is included in the assessable income of the taxpayer of a year of income or a deduction is not allowable or is not, in part, allowable, to the taxpayer in respect of a year of income;

 (b) in the opinion of the Commissioner, an amount of withholding tax has become payable and has been paid in respect of interest or royalties paid to a taxpayer (in this subsection referred to as the relevant taxpayer), being withholding tax that would not have become payable if the property had been supplied or acquired by the firstmentioned taxpayer under an agreement between independent parties dealing at arm’s length with each other in relation to the supply or acquisition; and

 (c) in the opinion of the Commissioner, it is fair and reasonable that that amount of withholding tax or part of that amount of withholding tax should not have become payable by the relevant taxpayer;

the Commissioner may determine that that amount of withholding tax or that part of that amount of withholding tax, as the case may be, should not have become payable by the relevant taxpayer and the Commissioner shall take such action as the Commissioner considers necessary to give effect to any such determination.

 (4) Where, at any time, a taxpayer considers that the Commissioner ought to make a determination under subsection (1) or (3) in relation to the taxpayer, the taxpayer may post to or lodge with the Commissioner a request in writing for the making by the Commissioner of a determination under the subsection concerned.

 (5) The Commissioner shall consider the request and serve on the taxpayer, by post or otherwise, a written notice of the Commissioner’s decision on the request.

 (6) If the taxpayer is dissatisfied with the Commissioner’s decision on the request, the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.


Division 15Insurance with nonresidents

141  Interpretation

  In this Division:

insurance contract means a contract or guarantee whereby liability is undertaken, contingent upon the happening of any specified event, to pay any money or make good any loss or damage, but does not include a contract of life assurance.

insured event means an event upon the happening of which the liability under an insurance contract arises.

insured person means a person with whom any insurance contract is entered into by an insurer.

insured property means the property the subject of an insurance contract made or given by an insurer.

insurer means any nonresident who undertakes liability under an insurance contract.

142  Income derived by nonresident insurer

 (1) Where an insured person, whether a resident or nonresident, has entered into an insurance contract with an insurer, and the insured property at the time of the making of the contract is situated in Australia, or the insured event is one which can happen only in Australia, the premium paid or payable under the contract shall be included in the assessable income of the insurer, and shall be deemed to be derived by the insurer from sources in Australia, and, unless the contract was made by a principal office or branch established by the insurer in Australia, this Division shall apply to that premium.

 (2) Where an insured person who is a resident has entered into an insurance contract with an insurer, and an agent or representative in Australia of the insurer was in any way instrumental in inducing the entry of the insured person into that contract, any premium paid or payable under the contract shall, wherever the insured property is situate, or the insured event may happen, be included in the assessable income of the insurer and shall be deemed to be derived by the insurer from sources in Australia, and, unless the contract was made by a principal office or branch established by the insurer in Australia, this Division shall apply to that premium.

143  Taxable income of nonresident insurer

  The insurer shall be deemed to have derived in any year, in respect of the premiums paid or payable in that year under such contracts, a taxable income equal to 10% of the total amount of such premiums:

Provided that, where the actual profit or loss derived or made by the insurer in respect of such premiums is established to the satisfaction of the Commissioner, the taxable income of the insurer in respect thereof, or the amount of the loss so made by the insurer shall, subject to this Act, be calculated by reference to receipts and expenditure taken into account in calculating that profit or loss.

144  Liability of agents of insurer

  The insured person and any person in Australia acting on behalf of the insurer shall be the agents of the insurer, and shall be jointly and severally liable as such for all purposes of this Act. If either of those persons pays or credits to the insurer any amount in respect of the insurance contract before arrangements have been made to the satisfaction of the Commissioner for the payment of any income tax which has been or may be assessed under this Division in respect of that amount, that person shall be personally liable to pay that tax.

145  Deduction of premiums

  Notwithstanding any other provision of this Act, no such premium shall be an allowable deduction to the insured person unless arrangements have been made to the satisfaction of the Commissioner for the payment of any income tax which has been or may be assessed in respect of that premium.

146  Exporter to furnish information

  Every person who exports any goods from Australia shall furnish to the Collector of Customs for transmission to the Commissioner a copy of the customs entry for such goods, and shall show thereon such information as is prescribed regarding the insurance of such goods.

147  Rate of tax in special circumstances

  Where the insurer satisfies the Commissioner that, on account of special circumstances, it is necessary that the rate of tax payable by the insurer under this Division should be ascertained at the time when premiums are paid to the insurer, the Commissioner may direct that the tax so payable in respect of premiums paid during any financial year shall be calculated at the rate which would have been payable if an assessment had been made in respect of those premiums at the date when they were paid.

148  Reinsurance with nonresidents

 (1) Notwithstanding anything contained in this Act other than section 177F, but subject to this section, where a person carrying on the business of insurance in Australia reinsures out of Australia the whole or part of any risk with a nonresident:

 (a) the premiums paid or credited in respect of the reinsurance shall not be:

 (i) an allowable deduction to the person carrying on the business of insurance in Australia; or

 (ii) included in the assessable income of the nonresident; and

 (b) the income of the person carrying on the business of insurance in Australia shall not include sums recovered from that nonresident in respect of a loss on any risk so reinsured.

 (2) A person carrying on the business of insurance in Australia who reinsures out of Australia the whole or part of any risk with a nonresident may elect, in accordance with this section, that the provisions of subsection (1) shall not be applied in arriving at that person’s taxable income, and thereupon:

 (a) those provisions shall not apply in arriving at that person’s taxable income of a year of income to which the election applies; and

 (b) that person shall be liable to furnish returns, and to pay tax, in accordance with the succeeding provisions of this section, as agent for all nonresidents with whom that person so reinsures.

 (3) Where a person makes an election under subsection (2), he or she shall, subject to subsection (5), be assessed and liable to pay tax as agent, on an amount equal to 10% of the sum of the gross amounts of the premiums paid or credited by him or her in the year of income (being a year of income to which the election applies) to nonresidents in respect of all such reinsurances, as if that amount were the taxable income of a nonresident company (not being a private company) not carrying on business in Australia by means either of a principal office or a branch.

 (4) A person who has made an election under this section shall, as agent, furnish to the Commissioner, within the prescribed time, or within such further time as the Commissioner allows, in respect of every year of income to which the election applies:

 (a) a return showing the gross amounts of the premiums paid or credited by that person to nonresidents in respect of all such reinsurances; or

 (b) 2 returns, of which:

 (i) one shall show the gross amounts of such premiums paid or credited by that person to nonresidents which are companies; and

 (ii) the other shall show the gross amounts of such premiums paid or credited by that person to nonresidents who are not companies.

 (5) Where returns are furnished by a person in accordance with paragraph (4)(b), there shall be excluded from the amount on which that person shall be assessed and liable to pay tax as agent in pursuance of subsection (3) an amount equal to 10% of the sum of the gross premiums properly shown in the return specified in subparagraph (4)(b)(ii), and that person shall, in addition to any other tax which that person is liable under this section to pay as agent, be assessed and liable to pay tax as agent on the amount so excluded as if it were the taxable income of a nonresident company (being a private company) not carrying on business in Australia by means either of a principal office or a branch.

 (6) An election for the purposes of this section shall:

 (c) be made on or before the last day for the furnishing of the taxpayer’s return of income of the year of income in respect of which the election is first to apply, or within such further time as the Commissioner allows;

 (d) first apply in respect of a year of income which shall be specified in the election; and

 (e) apply in respect of all subsequent years of income.

 (7) An assessment for the purposes of subsection (3) or (5) shall be made and notified separately from any other assessment.

 (8) Where a person is liable, in pursuance of an assessment for the purposes of this section, to pay tax, in respect of any premiums, as agent for more than one nonresident, the amount which that person shall be liable to pay as agent for any one of those nonresidents shall be so much of the tax so payable as bears to the whole of that tax the same proportion as the total amount of such of those premiums as were paid to that nonresident bears to the total amount of those premiums.

 (9) Where a person is or may become liable under this section to pay tax as agent for a nonresident in respect of any premium paid or credited by that person to that nonresident:

 (a) that person shall, for the purposes of section 254, be deemed to have received the premium in that person’s representative capacity immediately before it was so paid or credited; and

 (b) if that person pays or credits the premium before arrangements have been made to the satisfaction of the Commissioner for the payment of any tax which may be assessed in respect of that premium, that person shall be personally liable to pay that tax.

Application to a life assurance company

 (10) This section applies to a life assurance company in relation to the whole or a part of a risk if, and only if, the risk or that part of the risk:

 (a) is covered by a disability policy as defined in subsection 9951(1) of the Income Tax Assessment Act 1997; and

 (b) relates to a benefit that is payable in an event mentioned in that definition.

Division 16Averaging of incomes

149  Average income

 (1) For the purposes of the application of this Division in relation to a taxpayer in relation to a year of income, a reference in this Division to the average income of the taxpayer shall be construed as a reference to the average of the taxable incomes of the taxpayer of the years of income (in this Division referred to as average years) beginning with the first average year and ending with the firstmentioned year of income.

149A  Capital gains, abnormal income and certain death benefits to be disregarded

 (1) For the purposes of this Division (including the purpose of determining whether this Division applies to the income of a taxpayer):

 (a) references in this Division to the assessable income of a taxpayer shall be read as references to the amount that would have been the assessable income if the assessable income did not include any net capital gain and did not include any amount under section 8265, 8270 or 302145 of the Income Tax Assessment Act 1997; and

 (b) references in this Division to the taxable income of a taxpayer shall be read as references to the amount that would have been the taxable income if:

 (i) the assessable income did not include any net capital gain and did not include any amount under section 8265, 8270 or 302145 of the Income Tax Assessment Act 1997; and

 (ii) the taxable income were reduced by so much of the taxable income as consists of aboveaverage special professional income within the meaning of the Income Tax Assessment Act 1997.

 (2) A reference in subsection (1) to the assessable income or taxable income of a taxpayer of a year of income shall, in relation to a taxpayer in the capacity of trustee of a trust estate, be read as a reference to the assessable income or net income, as the case may be, of the trust estate of the year of income.

150  First average year

  Subject to this Division, the first average year shall be the fourth year before the year of income. A year the income of which was subject to assessment under the previous Act shall be capable of being a first or subsequent average year.

151  First application of Division in relation to a taxpayer

 (1) For the purposes of the first application of this Division in determining the tax payable by a taxpayer, the first average year shall be the first year which is otherwise capable of being an average year, and in which the taxable income is not greater than that of the next succeeding year. No year prior to that first average year shall, for the purposes of any application of this Division in determining the tax payable by a taxpayer, be capable of being an average year.

 (2) Any year in which the taxpayer was not carrying on business and was not in receipt of a taxable income shall not be counted as a first average year for the purposes of the first application of this Division in determining the tax payable by a taxpayer.

 (3) This section shall not apply to a taxpayer whose income has been or is liable to be assessed at an average rate of tax determined under the provisions of the previous Act.

152  Taxpayer not in receipt of assessable income

  Any year in which the taxpayer was not carrying on business and was not in receipt of assessable income shall not be counted as an average year, and the provisions of this Division shall apply to the income thereafter derived by the taxpayer as if he or she had never been a taxpayer before that year.

153  Taxpayer with no taxable income

  Any year in which the taxpayer was carrying on business but had no taxable income shall be capable of being an average year.

154  Excess of allowable deductions

  Any excess of allowable deductions over the assessable income of the taxpayer in any average year shall not be taken into account in calculating the average income.

155  Permanent reduction of income

 (1) Where a taxpayer establishes that, owing to his or her retirement from his or her occupation, or from any other cause (but not including a change in the investment of assets from which assessable income was derived into assets from which the taxpayer derives income which is not liable to be assessed under this Act), his or her taxable income has been permanently reduced to an amount which is less than twothirds of his or her average taxable income, he or she shall be assessed, and the provisions of this Division shall apply to the income thereafter derived by him or her, as if he or she had never been a taxpayer before that year.

 (2) For the purposes of the application of subsection (1) in relation to a taxpayer in relation to a year of income, a reference in that subsection to the average taxable income of the taxpayer shall be construed as a reference to the amount that would be the average income of the taxpayer in relation to that year of income ascertained in accordance with section 149 if there were excluded from the assessable income of the taxpayer of the average years any income received by him or her from sources from which he or she does not usually receive income.

156  Rebate of tax for, or complementary tax payable by, certain primary producers

 (1) In this section:

actual taxable income from primary production, in relation to a taxpayer in relation to a year of income, means the amount (if any) remaining after deducting from the assessable primary production income of the taxpayer of the year of income so much of the aggregate of the relevant primary production deductions of the taxpayer of the year of income as does not exceed that assessable income.

assessable primary production income, in relation to a taxpayer in relation to a year of income, means so much of the assessable income of the taxpayer of the year of income as was derived from the carrying on of a primary production business by the taxpayer or was included in the assessable income of the taxpayer of the year of income in consequence of the carrying on of a primary production business by the taxpayer.

deemed taxable income from primary production, in relation to a taxpayer in relation to a year of income, means:

 (a) if the taxpayer did not have a nonprimary production profit in relation to the year of income—the taxable income of the taxpayer; and

 (b) in any other case—the sum of the actual taxable income from primary production of the taxpayer of the year of income and the notional taxable income from primary production of the taxpayer of the year of income.

notional taxable income from primary production, in relation to a taxpayer in relation to a year of income, being a taxpayer who had a nonprimary production profit in relation to the year of income, means:

 (a) where the taxpayer did not incur a primary production loss in relation to the year of income:

 (i) in a case to which subparagraph (ii) does not apply—the amount ascertained by deducting from the taxable income of the taxpayer of the year of income the actual taxable income from primary production of the taxpayer of the year of income; and

 (ii) where the taxable income of the taxpayer of the year of income exceeds the actual taxable income from primary production of the taxpayer of the year of income and that excess is greater than $5,000—$5,000 reduced by $1 for each whole dollar by which the amount of that excess exceeds $5,000; and

 (b) where the taxpayer incurred a primary production loss in relation to the year of income:

 (i) in a case where the sum of the taxable income of the taxpayer of the year of income and the amount of the primary production loss is less than or equal to $5,000—the taxable income of the taxpayer of the year of income; and

 (ii) in a case where the sum of the taxable income of the taxpayer of the year of income and the amount of the primary production loss (which sum is in this subparagraph referred to as the nonfarm income) exceeds $5,000—an amount ascertained by deducting from $5,000 one dollar for each whole dollar by which so much of the nonfarm income as does not exceed $10,000 exceeds $5,000 and deducting from the resultant amount so much (if any) of the amount of the primary production loss as does not exceed that resultant amount.

relevant primary production deductions, in relation to a taxpayer in relation to a year of income, means:

 (a) any deductions allowed or allowable in the taxpayer’s assessment in respect of income of the year of income that relate exclusively to assessable primary production income of the taxpayer of a year of income;

 (b) so much of any other deductions (other than apportionable deductions) allowed or allowable in the taxpayer’s assessment in respect of income of the year of income as, in the opinion of the Commissioner, may appropriately be related to assessable primary production income of the taxpayer of a year of income; and

 (c) the amount that bears to the apportionable deductions allowed or allowable in the taxpayer’s assessment the same proportion as the amount ascertained by deduction from the assessable primary production income of the taxpayer of the year of income any deductions allowable from that assessable income in accordance with paragraphs (a) and (b) bears to the sum of the taxable income of the taxpayer of the year of income and the apportionable deductions.

 (2) For the purposes of subsection (1), a taxpayer shall be taken to have a nonprimary production profit in relation to a year of income if the assessable income of the taxpayer of the year of income other than assessable primary production income exceeds the aggregate of the deductions (other than relevant primary production deductions) allowable to the taxpayer in respect of the year of income.

 (3) For the purposes of subsection (1), a taxpayer shall be taken to have incurred a primary production loss in relation to a year of income if the aggregate of the relevant primary production deductions in relation to the year of income exceeds the assessable primary production income of the taxpayer of the year of income, and the amount of that loss shall be taken to be the amount of the excess.

 (5) Where:

 (a) this Division applies to a share of the net income of a trust estate of a year of income in respect of which a trustee is liable to be assessed and to pay tax in pursuance of subsection 98(1) or (2) or to the net income or a part of the net income of a trust estate of a year of income in respect of which a trustee is liable to be assessed and to pay tax in pursuance of section 99 (which share, net income or part, as the case may be, is in this subsection referred to as the eligible net income); and

 (b) the amount of tax that would, apart from this section, section 94, Division 6AA and Part VIIB and but for any rebate or credit to which the trustee is entitled, be payable by the trustee in respect of the eligible net income exceeds the amount of tax that would, apart from this section, section 94, Division 6AA and Part VIIB and but for any rebate or credit to which the trustee is entitled, be payable by the trustee in respect of the eligible net income if the notional rates declared by the Parliament for the purposes of this section were the rates of tax payable by the trustee in respect of the eligible net income;

the trustee is entitled, in his or her assessment in respect of the eligible net income, to a rebate of tax of an amount ascertained in accordance with the formula , where:

A  is the number of whole dollars in the amount of the deemed net income from primary production.

B  is the excess referred to in paragraph (b); and

C  is the number of whole dollars in the eligible net income.

 (5A) Where:

 (a) this Division applies to a share of the net income of a trust estate of a year of income in respect of which a trustee is liable to be assessed and to pay tax in pursuance of subsection 98(1) or (2) or to the net income or a part of the net income of a trust estate of a year of income in respect of which a trustee is liable to be assessed and to pay tax in pursuance of section 99 (which share, net income or part, as the case may be, is in this subsection referred to as the eligible net income); and

 (b) the amount of tax that would, apart from this section, section 94, Division 6AA and Part VIIB and but for any rebate or credit to which the trustee is entitled, be payable by the trustee in respect of the eligible net income if the notional rates declared by the Parliament for the purposes of this section were the rates of tax payable by the trustee in respect of the eligible net income exceeds the amount of tax that would, apart from this section, section 94, Division 6AA and Part VIIB and but for any rebate or credit to which the trustee is entitled, be payable by the trustee in respect of the eligible net income;

the trustee is liable to pay complementary tax, at the rate declared by the Parliament for the purposes of this subsection, on so much of the net income of the trust estate as is equal to the deemed net income from primary production.

 (6) For the purposes of the application of this section in relation to a share of the net income of a trust estate of a year of income in respect of which a trustee is liable to be assessed and to pay tax in pursuance of subsection 98(1) or (2) or in relation to the net income or a part of the net income of a trust estate of a year of income in respect of which a trustee is liable to be assessed and to pay tax in pursuance of section 99 (which share, net income or part, as the case may be, is in this subsection referred to as the eligible net income):

actual net income from primary production means so much of the net income from primary production of the trust estate as is included in the eligible net income.

assessable primary production income means so much of the assessable income of the trust estate of the year of income as was derived from the carrying on of a primary production business by the trustee or was included in the assessable income of the trust estate of the year of income in consequence of the carrying on of a primary production business by the trustee.

deemed net income from primary production means:

 (a) if the trust estate did not have a nonprimary production profit in relation to the year of income—the eligible net income; and

 (b) in any other case—the sum of the actual net income from primary production of the trust estate of the year of income and the notional net income from primary production of the trust estate of the year of income.

eligible part of the primary production loss, in relation to a primary production loss incurred by the trust estate in the year of income, means so much of the primary production loss as is equal to the amount by which the eligible net income would have been increased if the aggregate of the relevant primary production deductions allowable in calculating the amount of the net income of the trust estate of the year of income had been equal to the assessable primary production income of the trust estate of the year of income.

net income from primary production means the amount (if any) remaining after deducting from the assessable primary production income of the trust estate of the year of income so much of the aggregate of the relevant primary production deductions allowable in calculating the net income of the trust estate as does not exceed that assessable primary production income.

notional net income from primary production means:

 (a) where the trust estate had a nonprimary production profit in relation to the year of income and did not incur a primary production loss in relation to the year of income:

 (i) in a case to which subparagraph (ii) does not apply—the amount ascertained by deducting from the eligible net income the actual net income from primary production (if any); and

 (ii) where the eligible net income exceeds the actual net income from primary production in relation to the year of income and that excess is greater than $5,000—$5,000 reduced by $1 for each whole dollar by which the amount of that excess exceeds $5,000; and

 (b) where the trust estate had a nonprimary production profit in relation to the year of income and incurred a primary production loss in relation to the year of income:

 (i) in a case where the sum of the eligible net income and the eligible part of the primary production loss is less than or equal to $5,000—the eligible net income; and

 (ii) in a case where the sum of the eligible net income and the eligible part of the primary production loss (which sum is in this subparagraph referred to as the  nonfarm income) exceeds $5,000—an amount ascertained by deducting from $5,000 one dollar for each whole dollar by which so much of the nonfarm income as does not exceed $10,000 exceeds $5,000 and deducting from the resultant amount so much (if any) of the eligible part of the primary production loss as does not exceed that resultant amount.

relevant primary production deductions means:

 (a) any deductions allowed or allowable in calculating the amount of the net income of the trust estate of the year of income that relate exclusively to assessable primary production income of a year of income;

 (b) so much of any other deductions (other than apportionable deductions) allowed or allowable in calculating the amount of that net income as, in the opinion of the Commissioner, may appropriately be related to assessable primary production income of the trust estate of a year of income; and

 (c) the amount that bears to the apportionable deductions allowed or allowable in calculating the amount of that net income the same proportion as the amount ascertained by deducting from the assessable primary production income of the trust estate of the year of income any deductions allowable from that assessable primary production income in accordance with paragraphs (a) and (b) bears to the sum of the net income of the trust estate and the apportionable deductions.

 (7) For the purposes of subsection (6), a trust estate shall be taken to have incurred a primary production loss in relation to a year of income if the aggregate of the relevant primary production deductions allowable in calculating the amount of the net income of the trust estate of the year of income exceeds the assessable primary production income of the trust estate of the year of income, and the amount of that loss shall be taken to be the amount of the excess.

 (8) For the purposes of subsection (6), a trust estate shall be taken to have a nonprimary production profit in relation to a year of income if the assessable income of the trust estate of the year of income other than assessable primary production income exceeds the aggregate of the deductions (other than relevant primary production deductions) allowable in calculating the amount of the net income of the trust estate of the year of income.

157  Application of Division to primary producers

 (1) In respect of income derived during the year ending on 30 June 1938 and during any subsequent year or during any accounting period adopted in lieu of any such year, the foregoing provisions of this Division shall not apply except in respect of income derived by a primary producer.

 (2) For the purposes of this section, primary producer means a person who carries on in Australia a primary production business.

 (3) Subject to subsection (3A), for the purposes only of determining whether a person is carrying on a primary production business, a beneficiary in a trust estate shall, to the extent to which he or she is presently entitled to the income or part of the income of that estate, be deemed to be carrying on the business carried on by the trustees of the estate which produces that income.

 (3A) Subsection (3) does not operate to deem a beneficiary in a trust estate who is presently entitled to the income or a part of the income of that estate to be carrying on the business carried on by the trustees of the trust estate in a year of income unless:

 (a) the share of the income of that trust estate of the year of income to which the beneficiary is presently entitled is not less than $1,040; or

 (b) the Commissioner is satisfied that the interest of the beneficiary in the trust estate was not acquired by, or granted to, the beneficiary for the purpose, or primarily for the purpose, of enabling the provisions of this Division to apply in respect of income derived by the beneficiary.

 (4) If in any year in respect of which this Division applies only to taxpayers who are primary producers, a taxpayer was not carrying on business as a primary producer, that year shall not be counted as an average year and the provisions of this Division shall apply to the income thereafter derived by the taxpayer as if he or she had never been a taxpayer before that year.

158  Application of Division

  This Division shall not apply in any case where there are not at least 2 average years or where the taxpayer is assessed in accordance with section 99A in respect of the year of income, and shall not apply to the taxable income of a company except income in respect of which it is assessable as a trustee.

158A  Election that Division not apply

 (1) A taxpayer may elect that this Division shall not apply in relation to income of the taxpayer of a year of income specified in the election and of all subsequent years of income.

 (2) An election in pursuance of subsection (1) shall be made in writing and lodged with the Commissioner on or before the date of lodgment of the return of income of the taxpayer for the year of income specified in the election or within such further time as the Commissioner allows.

 (3) Where a taxpayer makes an election under subsection (1), this Division shall not apply in relation to income of the taxpayer of the year of income specified in the election or of any subsequent year of income.


Division 16DCertain arrangements relating to the use of property

159GE  Interpretation

 (1) In this Division:

arrangement includes:

 (a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable, or intended to be enforceable, by legal proceedings; and

 (b) any scheme, plan, proposal, action, course of action or course of conduct whether unilateral or otherwise.

arrangement payment, in relation to an arrangement relating to the use, or the control of the use, of an item of property, means so much of any payment liable to be made under the arrangement as represents consideration for any one or more of the following:

 (a) the use of the item;

 (b) the control of the use of the item;

 (c) the sale or disposal of the item.

arrangement period, in relation to an item of eligible property that is, or is included in, arrangement property in relation to an arrangement at a particular time, means the period that is at that time the total period during which the arrangement is likely to be in force in relation to that item of eligible property (including any period before that time when the arrangement was in force in relation to that item of eligible property).

arrangement property means property that is, or is to be, used, or the use of which is, or is to be, controlled, under an arrangement.

assessable arrangement payment means an arrangement payment that, apart from this Division, would be included in whole or in part in the assessable income of a taxpayer of a year of income.

associate means, in relation to a person other than an exempt public body, any person who is an associate, within the meaning of section 318, in relation to the person or, in relation to an exempt public body:

 (a) a partner of the exempt public body or a partnership in which the exempt public body is a partner; or

 (b) if a partner of the exempt public body is a natural person otherwise than in the capacity of trustee—the spouse or a child of that partner; or

 (c) a trustee of a trust where the exempt public body, or another entity that is an associate of the exempt public body because of paragraph (a), (b) or (d), benefits under the trust; or

 (d) a company where:

 (i) the company is sufficiently influenced by:

 (A) the exempt public body; or

 (B) another entity that is an associate of the exempt public body because of paragraph (a), (b) or (c); or

 (C) another company that is an associate of the exempt public body because of another application of this paragraph; or

 (D) 2 or more entities covered by the preceding subsubparagraphs; or

 (ii) a majority voting interest in the company is held by:

 (A) the exempt public body; or

 (B) the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and paragraphs (a), (b) and (c); or

 (C) the exempt public body and the entities that are associates of the exempt public body because of subparagraph (i) of this paragraph and because of paragraphs (a), (b) and (c).

Subsections 318(6) and (7) apply for the purposes of paragraphs (a) to (d) in the same way as those subsections apply for the purposes of section 318.

capital expenditure deduction means a deduction:

 (a) under the former Division 10, 10AAA, 10AA, 10A, 10C or 10D of this Part; or

 (b) under Subdivision 40B of the Income Tax Assessment Act 1997 for a depreciating asset that is a forestry road or timber mill building; or

 (c) under Division 43 of that Act; or

 (d) under section 40830 of that Act for an amount that is a project amount under subsection 40840(1) (about mining capital expenditure and transport capital expenditure); or

 (e) under the former Subdivision 330C, 330H or 387G of that Act.

control means effectively control.

depreciation deduction means a deduction:

 (a) in respect of depreciation under Division 3 of this Act or the former Division 42 of the Income Tax Assessment Act 1997; or

 (b) for the decline in value of a depreciating asset under Division 40 of the Income Tax Assessment Act 1997.

Division 10, 10AA or 10A property means property in relation to which there has been incurred:

 (a) allowable capital expenditure within the meaning of the former Division 10 or 10AA of this Part or the former Subdivision 330C of the Income Tax Assessment Act 1997 or mining capital expenditure within the meaning of section 40860 of that Act;

 (b) expenditure taken into account in ascertaining an amount of residual capital expenditure specified in the former paragraph 122C(1)(a); or

 (c) capital expenditure specified in the former subsection 124F(1) or 124JA(1) of this Act or the former section 387460 of the Income Tax Assessment Act 1997; or

 (d) capital expenditure on a forestry road in connection with a timber operation, or capital expenditure for the construction or acquisition of a timber mill building.

Division 10AAA property means property in relation to which there has been incurred capital expenditure to which the former Division 10AAA of this Part applies or transport capital expenditure within the meaning of the former Subdivision 330H, or section 40865 of the Income Tax Assessment Act 1997.

Division 10C or 10D property means property in relation to which there has been incurred qualifying expenditure within the meaning of the former Division 10C or 10D or for which there is a pool of construction expenditure within the meaning of Division 43 of the Income Tax Assessment Act 1997.

effective life, in relation to an item of eligible property at a particular time, means the period (if any) that the Commissioner estimates will be, or would be, at that time the effective life of the property after that time assuming that it is or would be maintained in reasonably good order and condition.

eligible amount, in relation to an item of eligible property, means:

 (a) where the item is an item of eligible depreciation property—the amount that:

 (i) was the cost of the item of property within the meaning of Division 40, or the former Division 42, of the Income Tax Assessment Act 1997 to the taxpayer who holds it; or

 (ii) would have been the cost of the item of property to the taxpayer for the purposes of that Division if that Division had applied in relation to the item of property; and

 (b) where the item is an item of eligible capital expenditure property—any amount of eligible capital expenditure in relation to the item of property.

eligible capital expenditure, in relation to an item of eligible capital expenditure property, means expenditure by reason of which the item of property is eligible capital expenditure property.

eligible capital expenditure property means Division 10, 10AA or 10A property, Division 10AAA property, Division 10C or 10D property or eligible spectrum licences.

eligible depreciation property means:

 (a) plant or articles within the meaning of the former section 54 of this Act; or

 (b) plant within the meaning of the former section 4218 of the Income Tax Assessment Act 1997 or plant within the meaning of section 4540 of that Act; or

 (c) a depreciating asset within the meaning of Division 40 of that Act.

eligible property means:

 (a) eligible depreciation property;

 (b) Division 10, 10AA or 10A property;

 (c) Division 10AAA property;

 (d) Division 10C or 10D property; or

 (e) eligible spectrum licences.

eligible real property, means eligible property that is:

 (a) a building or a part of a building; or

 (b) a structure that is a fixture or a part of such a structure.

eligible spectrum licence means a spectrum licence within the meaning of the Income Tax Assessment Act 1997.

exempt public body means:

 (a) the Commonwealth, a State or a Territory; or

 (aa) an STB (within the meaning of Division 1AB) the income of which is wholly exempt from tax; or

 (b) a municipal corporation or other local governing body, the income of which is wholly exempt from tax; or

 (c) a public authority:

 (i) that is constituted by or under a law of the Commonwealth, a State or a Territory; and

 (ii) the income of which is wholly exempt from tax.

payment portion, in relation to an arrangement payment in relation to an eligible amount in relation to an item of eligible property, means so much of the arrangement payment as the Commissioner considers is attributable to the eligible amount in relation to the item of eligible property.

person includes an exempt public body.

total notional principal, in relation to an eligible amount in relation to an item of eligible property in relation to an application period, means the sum of all notional principal amounts (if any) in relation to payment portions of arrangement payments in relation to the eligible amount in relation to the application period.

Note: This Division applies to deductions under Division 40 (Capital allowances) and Division 43 (Capital works) of the Income Tax Assessment Act 1997 as if you were the owner of an asset you hold (under that Division) instead of any other person: see section 40135 of that Act.

 (2) For the purposes of the definition of  arrangement period in subsection (1), a reference in that definition to the total period during which an arrangement is, at a particular time, likely to be in force in relation to an item of eligible property that at that time is, or is included in, arrangement property in relation to the arrangement is a reference to:

 (a) where at that time the total period during which the arrangement was, or is, to be in force in relation to that item of eligible property (including any period before that time when the arrangement was in force in relation to that item) was or is specified in or ascertainable in accordance with the arrangement—that period; and

 (b) in any other case—such period as would have been, or is, at that time the period during which the arrangement would be, or is, likely to be in force in relation to the item of property (including any period before that time when the arrangement was in force in relation to the item), having regard to the provisions of the arrangement and any other relevant circumstances in relation to the arrangement, or in relation to the item of property.

 (3) Nothing in this Division prevents an item of eligible property from being an item of eligible property by reason of the application of 2 or more paragraphs of the definition of eligible property in subsection (1).

 (4) For the purposes of the definition of total notional principal in subsection (1), where:

 (a) under section 159GK there is an interest amount within the meaning of that section in relation to a payment portion (not being a notional final payment portion within the meaning of that section) in relation to an arrangement payment; and

 (b) the interest amount is less than the amount of the payment portion;

there shall be taken to be a notional principal amount in relation to the payment portion of an amount equal to the difference between the interest amount and the amount of the payment portion.

 (5) Where:

 (a) under 2 or more successive arrangements relating to the use by a person, or the control by a person of the use, of property owned by another person, the same property is used by, or the use of the same property is controlled by, the same person or by persons who, in relation to each other, are associates; and

 (b) the Commissioner considers that the arrangements should be taken, for the purposes of this Division, to be a single arrangement;

the arrangements shall, for the purposes of this Division, be deemed to be a single arrangement entered into at the same time as the first of the arrangements, coming into force at the same time as the first of the arrangements and continuing in force until the expiration of the second or last, as the case requires, of the arrangements.

 (6) A reference in subsection (5) to successive arrangements includes a reference to:

 (a) where the arrangement periods of 2 or more arrangements overlap—those arrangements; and

 (b) where there is a period between the expiration of an arrangement and the commencement of another arrangement and the Commissioner considers that the arrangements should be taken to be successive arrangements for the purposes of that subsection—those arrangements.

 (7) Where this Division applies in relation to an item of eligible property in relation to a qualifying arrangement, a reference in this Division to the application period in relation to that application of this Division in relation to the item of eligible property is a reference to the period commencing at the time at which this Division in that application commences to apply and ending at the time at which this Division in that application ceases to apply.

 (8) For the purposes of this Division, where one or more of the partners in a partnership uses, or controls the use of, an item of property, each of the partners in the partnership shall be taken to use, or to control the use of, the item of property and the partnership shall be taken not to use, or to control the use of, the item of property.

 (10) For the purpose of this Division, disregard an acquisition or disposal of property by way of the transfer of the property for the provision or redemption of a security. Consequently this Division applies as if the person who was the owner of the property before the transfer continues to be the owner after the transfer.

159GEA  Division applies to certain State/Territory bodies

  In addition to any other operation that this Division has, this Division operates as if the references to an exempt public body included a reference to a prescribed excluded STB (within the meaning of Division 1AB).

159GF  Residual amounts

 (1) Subject to subsection 159GJ(1), in this Division a reference to the residual amount at a particular time (in this subsection referred to as the relevant time) in relation to the eligible amount by reason of which an item of property is eligible depreciation property at the relevant time is a reference to the eligible amount reduced by:

 (a) where the item of property was not dealt with by the taxpayer who holds the item in the prescribed manner at any time during the period (in this subsection referred to as the relevant period) before the relevant time when it was held by the taxpayer (within the meaning of Division 40 of the Income Tax Assessment Act 1997)—the total amount of deductions for depreciation or decline in value that would, but for any deduction denying provision, have been allowable to the taxpayer under this Act or the Income Tax Assessment Act 1997 in respect of that item of property for the relevant period if:

 (i) at all times during the relevant period the taxpayer had wholly and exclusively dealt with the item of property in the prescribed manner; and

 (ii) those deductions were calculated using the diminishing value method; and

 (iii) section 57AG, as in force immediately before the commencement of section 1 of the Taxation Laws Amendment Act 1992, did not apply in relation to the item of property;

 (b) where the item of property was wholly and exclusively dealt with by the taxpayer who held the item in the prescribed manner at all times during the relevant period—the total amount of deductions for depreciation or decline in value that were or, but for any deduction denying provision, would have been, allowed or allowable to the taxpayer in respect of the item of property for that period under this Act or the Income Tax Assessment Act 1997; and

 (c) in any other case—the total amount of deductions for depreciation or decline in value that, but for any deduction denying provision, would have been allowable to the taxpayer who holds the item of property in respect of the item under this Act or the Income Tax Assessment Act 1997 for the relevant period if:

 (i) the taxpayer had wholly and exclusively dealt with the item of property in the prescribed manner at all times during the relevant period; and

 (ii) in respect of any part of the relevant period for which deductions for depreciation or decline in value were or, but for any deduction denying provision, would have been allowed or allowable under this Act or the Income Tax Assessment Act 1997—the deductions were allowable on the same basis and at the same percentage as was or would have been allowed or allowable for that part of the relevant period; and

 (iii) in respect of any other part (in this subparagraph referred to as the relevant part) of the relevant period—the deductions were allowable:

 (A) where the relevant part was immediately succeeded by another part of the relevant period in respect of which deductions for depreciation or decline in value were or, but for any deduction denying provision, would have been allowed or allowable under this Act or the Income Tax Assessment Act 1997—on the same basis and at the same percentage as was or would have been allowed or allowable in respect of that other part; and

 (B) in any other case—on the same basis and at the same percentage as was or, but for any deduction denying provision, would have been allowed or allowable under this Act or the Income Tax Assessment Act 1997 in respect of the part of the relevant period for which deductions for depreciation or decline in value was or would have been allowed or allowable, being the part that immediately preceded the relevant part.

 (2) For the purposes of subsection (1):

 (a) an item of eligible depreciation property shall be taken to be dealt with by a taxpayer in the prescribed manner at a particular time if:

 (i) the item of property is used by the taxpayer at that time for the purpose of producing assessable income; or

 (ii) the item of property is, at that time, installed ready for use for the purpose of producing assessable income and held in reserve by the taxpayer; and

 (b) a reference to a deduction denying provision is a reference to a provision of this Act that would have the effect of denying an entitlement in whole or in part to a deduction otherwise wholly allowable under this Act.

 (3) Subject to subsection 159GJ(2), where any of the following amounts (in this subsection referred to as the attributable amount):

 (a) an amount of residual previous capital expenditure within the meaning of the former Division 10 or 10AA;

 (b) an amount of residual capital expenditure within the meaning of the former Division 10, 10AA or 10A;

 (c) an amount of residual (1 May 1981 to 18 August 1981) capital expenditure within the meaning of the former Division 10 or 10AA;

 (d) an amount of residual (19 August 1981 to 19 July 1982) capital expenditure within the meaning of the former Division 10 or 10AA;

 (e) so much as is unrecouped of an amount of allowable (post19 July 1982) capital expenditure within the meaning of the former Division 10 or 10AA;

 (f) so much as is unrecouped of an amount of allowable capital expenditure within the meaning of the former Subdivision 330C of the Income Tax Assessment Act 1997;

 (fa) so much of an amount of mining capital expenditure or transport capital expenditure (within the meaning of the Income Tax Assessment Act 1997) as has not been deducted under Division 40 of that Act;

 (g) the difference between capital expenditure and previous deductions as defined in the former subsection 387470(1) of the Income Tax Assessment Act 1997;

 (h) the difference between the cost of a forestry road or timber mill building for the purposes of Division 40 of the Income Tax Assessment Act 1997 and its adjustable value for the purposes of that Division;

ascertained as at the end of a year of income, is attributable in whole or in part to an amount of expenditure (in this subsection referred to as the relevant expenditure) by reason of which an item of property is Division 10, 10AA or 10A property, in this Division a reference to the residual amount at any time during the year of income in relation to the relevant expenditure is a reference to so much of the attributable amount as is attributable to the relevant expenditure.

 (4) Subject to subsection 159GJ(3), in this Division a reference to the residual amount at a particular time in relation to an amount of expenditure by reason of which an item of property is Division 10AAA property is a reference to the amount of expenditure reduced by any part of that expenditure that has been allowed or is allowable as a deduction under the former Division 10AAA of this Part or the former Subdivision 330H of the Income Tax Assessment Act 1997, or under Subdivision 40I of that Act for transport capital expenditure, from the assessable income of any taxpayer of a year of income preceding the year of income in which the particular time occurs.

 (5) Subject to subsection 159GJ(4), in this Division a reference to the residual amount at a particular time in relation to an amount of expenditure by reason of which an item of property is Division 10C or 10D property is a reference to the residual capital expenditure within the meaning of the former Division 10C or 10D of this Part, or to the undeducted construction expenditure within the meaning of Division 43 of the Income Tax Assessment Act 1997, as appropriate, at that time in relation to the amount of expenditure.

 (6) In this Division, a reference to the residual amount at a particular time in relation to an amount of expenditure because of which an item of property is an eligible spectrum licence is a reference to:

 (a) the amount of unrecouped expenditure (within the meaning of the former section 38020 of the Income Tax Assessment Act 1997) on that licence at that time; or

 (b) the adjustable value of that licence (within the meaning of Division 40 of that Act) at that time.

159GG  Qualifying arrangements

 (1) For the purposes of this Division, where at any time (in this subsection referred to as the relevant time) any of the following conditions is satisfied in relation to an arrangement relating to the use by a person (in this subsection referred to as the enduser), or to the control by a person (in this subsection also referred to as the enduser) of the use, of property owned by another person who is a party to the arrangement, being property that is or includes an item of eligible property:

 (a) the arrangement contains provision to the effect that:

 (i) if:

 (A) on the termination or expiration of the arrangement, the owner sells or otherwise disposes of the whole of the arrangement property, or part of the arrangement property that is or includes the item of eligible property, to any person; and

 (B) the owner or an associate receives in respect of the sale or disposal no consideration, or consideration of an amount less than an amount (in this subparagraph referred to as the guaranteed residual value) specified in, or ascertainable under, the provision;

  the enduser or an associate will pay to the owner or an associate an amount equal to the guaranteed residual value, or to the amount by which the guaranteed residual value exceeds the consideration, as the case may be;

 (ii) at or after the termination or expiration of the arrangement, the whole of the arrangement property or part of the arrangement property that is or includes the item of eligible property is to be transferred (whether or not for any consideration) to the enduser or an associate;

 (iii) the enduser or an associate has or will have the right to purchase or to require the transfer of the whole of the arrangement property or part of the arrangement property that is or includes the item of eligible property; or

 (iv) the arrangement period in relation to the item of eligible property in relation to the arrangement is a period that exceeds 1 year and the enduser or an associate will be liable to carry out, to expend money in respect of or to reimburse the owner or an associate for expenditure in respect of, repairs that may be required to the whole of the arrangement property or to part of the arrangement property that is or includes the item of eligible property;

 (b) the arrangement period in relation to the item of eligible property in relation to the arrangement is equal to or greater than:

 (i) where the item is an item of eligible real property—50% of the effective life of that item at the commencement of the arrangement period; or

 (ii) in any other case—75% of the effective life of that item at the commencement of the arrangement period;

 (c) the sum of:

 (i) the payment portions of arrangement payments that were liable to be made at or before the relevant time in relation to the eligible amount, or in relation to all of the eligible amounts (including any eligible amount in respect of expenditure incurred after the commencement of the arrangement period), in relation to the item of eligible property; and

 (ii) the payment portions of arrangement payments that, having regard to the provisions of the arrangement and any other relevant circumstances, are or were, at the relevant time, likely to become liable to be made after the relevant time in relation to the eligible amount, or in relation to all of the eligible amounts (including any eligible amount in respect of expenditure that, having regard to the provisions of the arrangement and any other relevant circumstances, is or was likely to be incurred during the arrangement period), in relation to the item of eligible property;

  is equal to or greater than 90% of the sum of:

 (iii) the residual amount in relation to the eligible amount, or the sum of the residual amounts in relation to the eligible amounts, in respect of which expenditure was incurred before the commencement of the arrangement period in relation to the item of eligible property, as ascertained at the commencement of the arrangement period; and

 (iv) the amount of any expenditure that was, or is likely to be, incurred during the arrangement period, being expenditure giving rise to an eligible amount in relation to the item of eligible property;

the arrangement shall be taken to be, or to have been, a qualifying arrangement in relation to the item of eligible property:

 (d) at the relevant time; and

 (e) at all times before the relevant time when the arrangement was in force in relation to the item of eligible property.

 (2) For the purposes of this Division, where:

 (a) an item of eligible property is, or is included in, arrangement property in relation to an arrangement relating to the use by a person (in this subsection referred to as the enduser), or to the control by a person (in this subsection also referred to as the enduser) of the use, of property owned by another person who is a party to the arrangement; and

 (b) the ownership of the item of eligible property is transferred to the enduser or an associate within 1 year after the arrangement ceases to be in force (whether by termination or expiration) in relation to the item of eligible property;

the arrangement shall be taken to have been a qualifying arrangement in relation to the item of eligible property at all times during the period during which the arrangement was in force in relation to the item of eligible property.

 (3) For the purposes of subsections (1) and (2):

 (a) a lease to a person of property owned by another person shall be taken to be an arrangement relating to the use by the person of property owned by the other person; and

 (b) any arrangement entered into in relation to the lease referred to in paragraph (a) shall be taken to be part of the arrangement referred to in that paragraph.

 (4) Where, but for this subsection, an arrangement would be a qualifying arrangement in relation to an item of eligible property at a particular time (in this subsection referred to as the relevant time) and the Commissioner, having regard to:

 (a) the circumstances by reason of which the arrangement is a qualifying arrangement in relation to that item of eligible property; and

 (b) any other relevant circumstances;

considers it unreasonable that the arrangement should be a qualifying arrangement at the relevant time in relation to the item of eligible property, the arrangement shall be taken not to be a qualifying arrangement at the relevant time in relation to the item of eligible property.

 (5) Where an arrangement is a qualifying arrangement in relation to an item of eligible property at a particular time (in this subsection referred to as the relevant time) and the arrangement ceases to be a qualifying arrangement in relation to that item of eligible property at a later time, the arrangement shall not be taken not to have been a qualifying arrangement in relation to that item of eligible property at the relevant time by reason of it ceasing to be a qualifying arrangement in relation to that item of eligible property at the later time.

159GH  Application of Division in relation to property

 (1A) This Division does not apply in relation to the item of eligible property that is put to a tax preferred use (within the meaning of the Income Tax Assessment Act 1997) if the tax preferred use:

 (a) starts on or after 1 July 2007; and

 (b) does not occur under a legally enforceable arrangement entered into before 1 July 2007.

 (1B) This Division does not apply in relation to the item of eligible property that is put to a tax preferred use (within the meaning of the Income Tax Assessment Act 1997) if:

 (a) the tax preferred use starts on or after 1 July 2007; and

 (b) the tax preferred use occurs under a legally enforceable arrangement that was entered into before 1 July 2007; and

 (c) an election is made under item 71 of Schedule 1 to the Tax Laws Amendment (2007 Measures No. 5) Act 2007 to have subitem 71(2) of that Schedule apply to the property.

 (1) Subject to subsections (1A), (1B) and (2), where:

 (a) at a particular time (in this subsection referred to as the relevant time) an arrangement is a qualifying arrangement under subsection 159GG(1) or (2) in relation to an item of eligible property; and

 (b) either of the following conditions is satisfied:

 (i) the qualifying arrangement was entered into after 5 o’clock in the afternoon, by standard time in the Australian Capital Territory, on 15 May 1984 and the enduser referred to in subsection 159GG(1) or (2) is an exempt public body;

 (ii) the arrangement was entered into after 5 o’clock in the afternoon, by legal time in the Australian Capital Territory, on 16 December 1984 and the use of the property referred to in subsection 159GG(1) or (2) takes place, or will take place, outside Australia and is, or will be, wholly or partly for the purpose of producing exempt income;

this Division applies in relation to the item of eligible property at the relevant time.

 (2) This Division does not apply in relation to an item of eligible property at a particular time if at that time section 51AD applies to the item of eligible property in relation to a taxpayer.

159GJ  Effect of application of Division on certain deductions etc.

 (1) Where this Division applies in relation to an item of eligible depreciation property:

 (b) in relation to any year of income the whole of which is included in or comprises the application period—no depreciation deduction shall be allowable to any taxpayer in relation to the item of property for that year of income;

 (c) in relation to any other year of income in which the whole or a part of the application period occurs:

 (i) in relation to any part (in this subsection referred to as the preapplication part) of the year of income that precedes the application period—there shall be allowable to a taxpayer as a depreciation deduction in relation to the item of property:

  (A) where this Division has not previously applied in relation to the item of property—the same depreciation deduction (if any) as would, apart from this Division, be allowable to the taxpayer; and

 (B) in any other case—the same depreciation deduction (if any) as would, but for this application of this section, be allowable to the taxpayer;

 (ii) in relation to the part of the year of income during which this Division applies—no depreciation deduction shall be allowable to any taxpayer in relation to the item of property; and

 (iii) in relation to any part (in this subsection referred to as the postapplication part) of the year of income that occurs after the application period (not being a part that occurs after the commencement of a subsequent application period):

 (A) the residual amount in relation to the item of eligible depreciation property at any time (in this subsubparagraph referred to as the relevant time) during the postapplication part is an amount ascertained in accordance with the formula:

  where:

  A is the amount that, but for this application of this section, would be the residual amount at the relevant time in relation to the eligible amount (in this subparagraph referred to as the relevant eligible amount) by reason of which the item is an item of eligible depreciation property.

  B is:

 (a) where paragraph (b) of this component does not apply—the amount that, in determining the residual amount in component A, would be taken into account as depreciation under subsection 159GF(1) in respect of the application period; and

 (b) where, in determining the residual amount in component A, depreciation deductions taken into account in respect of the postapplication part would be calculated under this Act or the Income Tax Assessment Act 1997 using the diminishing value method—the amount that, in determining the residual amount in component A, would be taken into account under subsection 159GF(1) as depreciation deductions in respect of the application period and the part of the postapplication part before the relevant time; and

  C is:

 (a) where paragraph (a) of component B applies—an amount equal to the total notional principal in relation to the relevant eligible amount in relation to the application period; and

 (b) where paragraph (b) of component B applies—the sum of:

 (i) the total notional principal in relation to the relevant eligible amount in relation to the application period; and

 (ii) the amount that, in determining the residual amount in component A, would be taken into account as depreciation deductions under subsection 159GF(1) in respect of the part of the postapplication part before the relevant time if the depreciated value under this Act, the undeducted cost under the former Division 42 of the Income Tax Assessment Act 1997 or the adjustable value under Division 40 of that Act, of the item of eligible depreciation property at the beginning of the year of income in which this Division ceases to apply were equal to the residual amount at the beginning of the application period as reduced by the total notional principal in relation to the relevant eligible amount in relation to the application period;

 (B) for the purposes of any application of this Act or the Income Tax Assessment Act 1997, in relation to the item of property in relation to the postapplication part—the depreciated value, within the meaning of Division 3 of this Part, the undeducted cost under the former Division 42 of the Income Tax Assessment Act 1997 or the adjustable value under Division 40 of that Act, of the item of property at any time during the postapplication part shall be taken to be an amount equal to the residual amount in relation to the relevant eligible amount at that time as ascertained in accordance with sub-subparagraph (A); and

 (C) the depreciation deduction (if any) allowable to a taxpayer in relation to the item of property in relation to the postapplication part is the depreciation deduction that would be allowable in respect of that period if this Division did not apply and, in the case of an item of property in relation to which the former paragraph 56(1)(a) of this Act or the diminishing value method under the former Division 42, or Division 40, of the Income Tax Assessment Act 1997 would, apart from this Division, apply, if the depreciated value, within the meaning of the former section 62 of this Act, the undeducted cost, under the former Division 42 of the Income Tax Assessment Act 1997 or the adjustable value under Division 40 of that Act, of the item of property at the beginning of the year of income were equal to the residual amount, as ascertained under sub-subparagraph (A), in relation to the relevant eligible amount at the commencement of the postapplication part;

 (d) the residual amount at any time (in this paragraph referred to as the relevant time) after the year of income in which the application period ends (not being a time after the commencement of a subsequent application period) in relation to the eligible amount (in this paragraph referred to as the relevant eligible amount) by reason of which the item is an item of eligible depreciation property is the amount that would be the residual amount in relation to the relevant eligible amount in relation to the relevant time under sub-subparagraph (1)(c)(iii)(A) if the postapplication part referred to in that subsubparagraph extended to include the relevant time; and

 (e) for the purpose of the application of this Act and the Income Tax Assessment Act 1997 in relation to the item of property at any time after the year of income in which the application period ends—there shall be taken to have been allowed as a depreciation deduction in relation to the item of property in relation to the application period an amount equal to the total notional principal in relation to the eligible amount by reason of which the item of property is eligible depreciation property in relation to the application period.

 (2) Where this Division applies in relation to an item of Division 10, 10AA or 10A property:

 (a) no deduction is allowable to any taxpayer under:

 (ii) section 40830 of the Income Tax Assessment Act 1997 for a project amount that is mining capital expenditure within the meaning of that Act; or

 (iii) Subdivision 40B of that Act for a depreciating asset that is a forestry road or timber mill building;

  in relation to any amount of expenditure (not being expenditure incurred after the application period) by reason of which the item is Division 10, 10AA or 10A property for any year of income in which the whole or a part of the application period occurs;

 (b) the residual amount at any time after the application period (not being a time after the commencement of a subsequent application period) in relation to an amount of expenditure (not being expenditure incurred after the application period) by reason of which the item is Division 10, 10AA or 10A property is an amount equal to the amount that, but for this paragraph, would be the residual amount at that time in relation to the amount of expenditure under subsection 159GF(3) reduced by an amount equal to the total notional principal in relation to the amount of expenditure in relation to the application period and any prior application period; and

 (c) for the purposes of the application of:

 (ii) section 40830 of the Income Tax Assessment Act 1997 for a project amount that is mining capital expenditure within the meaning of that Act; or

 (iii) Subdivision 40B of that Act for a depreciating asset that is a forestry road or timber mill building;

  in relation to an amount of expenditure (not being expenditure incurred after the application period) by reason of which the item is Division 10, 10AA or 10A property at any time after the application period, there shall be taken to have been allowed in respect of the amount of expenditure a deduction under whichever of those provisions applies in respect of the amount of expenditure of an amount equal to the total notional principal in relation to the amount of expenditure in relation to the application period.

 (3) Where this Division applies in relation to an item of Division 10AAA property:

 (a) no deduction is allowable to any taxpayer under section 40830 of the Income Tax Assessment Act 1997 for a project amount that is transport capital expenditure within the meaning of that Act in relation to any amount of expenditure (not being expenditure incurred after the application period) by reason of which the item is Division 10AAA property for any year of income in which the whole or a part of the application period occurs; and

 (b) the residual amount at any time after the application period (not being a time after the commencement of a subsequent application period) in relation to an amount of expenditure (not being expenditure incurred after the application period) by reason of which the item is Division 10AAA property is an amount equal to the amount that, but for this paragraph, would be the residual amount at that time in relation to the amount of expenditure under subsection 159GF(4) reduced by an amount equal to the total notional principal in relation to the amount of expenditure in relation to the application period and any prior application period; and

 (c) for the purposes of the application of section 40830 of the Income Tax Assessment Act 1997, for a project amount that is transport capital expenditure within the meaning of that Act, in relation to an amount of expenditure (not being expenditure incurred after the application period) by reason of which the item is Division 10AAA property for any year of income after the year of income in which this Division ceases to apply—it is taken to be a requirement of that section that the deduction allowable under that section in respect of the amount of expenditure does not exceed the residual amount in relation to the amount of expenditure as worked out in accordance with paragraph (b).

 (4) Where this Division applies in relation to an item of Division 10C or 10D property:

 (a) in relation to any year of income the whole of which is included in or comprises the application period—no deduction shall be allowable to any taxpayer under Division 43 of the Income Tax Assessment Act 1997, in relation to any amount of expenditure by reason of which the item is Division 10C or 10D property for that year of income;

 (b) in relation to any other year of income in which the whole or a part of the application period occurs:

 (i) in relation to any part (in this subsection referred to as the preapplication part) of the year of income that precedes the application period—there shall be allowable to the taxpayer as a deduction under Division 43 of the Income Tax Assessment Act 1997 in relation to an amount of expenditure by reason of which the item is Division 10C or 10D property:

 (A) where this Division has not previously applied in relation to the amount of expenditure—the same deduction (if any) as would, apart from this Division, be allowable under that Division; and

 (B) in any other case—the same deduction (if any) as would, but for this application of this section, be allowable under that Division;

 (ii) in relation to the part of the year of income during which this Division applies—no deduction shall be allowable to any taxpayer under Division 43 of the Income Tax Assessment Act 1997 in relation to any amount of expenditure by reason of which the item is Division 10C or 10D property; and

 (iii) in relation to any part (in this subsection referred to as the postapplication part) of the year of income that occurs after the application period (not being a part that occurs after the commencement of a subsequent application period):

 (A) the residual amount at any time during the postapplication part in relation to an amount of expenditure (not being expenditure incurred after the application period) by reason of which the item is Division 10C or 10D property is an amount equal to the amount that, but for this paragraph, would be the residual amount at that time in relation to the amount of expenditure under subsection 159GF(5) reduced by an amount equal to the total notional principal in relation to the amount of expenditure in relation to the application period and any prior application period; and

 (C) the deduction (if any) allowable to a taxpayer in relation to an amount of expenditure (not being expenditure incurred after the application period) by reason of which the item is Division 10C or 10D property under Division 43 of the Income Tax Assessment Act 1997 in relation to the postapplication part is the deduction (if any) that would be allowable to the taxpayer under that Division in respect of that period if this Division (other than this subsubparagraph) did not apply and if it were a requirement of that Division that the deduction did not exceed the residual amount in relation to the amount of expenditure as ascertained in accordance with sub-subparagraph (A);

 (c) the residual amount at any time after the year of income in which the application period ends (not being a time after the commencement of a subsequent application period) in relation to an amount of expenditure (not being expenditure incurred after the application period) by reason of which the item is Division 10C or 10D property is the amount that, but for this paragraph, would be the residual amount at that time in relation to the amount of expenditure under subsection 159GF (5) reduced by an amount equal to the total notional principal in relation to the amount of expenditure in relation to the application period and any prior application period; and

 (d) in the application of Division 43 of the Income Tax Assessment Act 1997 in relation to any year of income after the year of income in which this Division ceases to apply, in relation to an amount of expenditure (not being expenditure incurred after the application period) by reason of which the item is Division 10C or 10D property it shall be taken to be a requirement of Division 43 of the Income Tax Assessment Act 1997 that the deduction (if any) allowable to a taxpayer under that Division in respect of the amount of expenditure does not exceed the residual amount in relation to the amount of expenditure as ascertained in accordance with paragraph (c).

 (5) If this Division applies in relation to an item of property that is an eligible spectrum licence:

 (a) an amount cannot be deducted under Division 40 of the Income Tax Assessment Act 1997 in relation to any amount of expenditure (other than expenditure incurred after the application period) by reason of which the item is an eligible spectrum licence for any year of income in which any of the application period occurs; and

 (b) the residual amount at any time after the application period (but before the start of a later application period) in relation to an amount of expenditure (other than expenditure incurred after the application period) because of which the item is an eligible spectrum licence is an amount equal to:

  the amount that, if not for this paragraph, would be the residual amount at that time in relation to the amount of expenditure under subsection 159GF(6);

  reduced by:

  an amount equal to the total notional principal in relation to the amount of expenditure in relation to the application period and any prior application period; and

 (c) for the purposes of applying Division 40 of the Income Tax Assessment Act 1997 in relation to an amount of expenditure (other than expenditure incurred after the application period) because of which the item is an eligible spectrum licence at any time after the application period, a deduction under that Division is taken to have been allowed, for the amount of expenditure, of an amount equal to the total notional principal in relation to the amount of expenditure in relation to the application period.

159GK  Effect of application of Division on assessability of arrangement payments

 (1) Where this Division applies in relation to an item of eligible property in relation to which there is an assessable arrangement payment or assessable arrangement payments in relation to a taxpayer in respect of the application period, there shall be included in the assessable income of the taxpayer so much only of any payment portion of each assessable arrangement payment in relation to an eligible amount as does not exceed the interest amount (if any) in relation to the payment portion.

 (2) For the purposes of subsection (1), a reference to the interest amount in relation to a payment portion of an assessable arrangement payment in relation to an eligible amount is a reference to the amount (if any) ascertained in accordance with the formula A (1 + B)t – A, where:

A  is the eligible principal in relation to the payment portion;

B  is:

 (a) where the sum of the payment portions of the likely arrangement payments in relation to the eligible amount in respect of the likely application period (including any notional final payment portion of an arrangement payment) exceeds the residual amount, as ascertained at the commencement of the application period, in relation to the eligible amount—the fraction that is the effective annual interest rate, ascertained at the commencement of the application period referred to in subsection (1), at which the sum of the present values of the payment portions equals the residual amount; and

 (b) in any other case—nil; and

t  is the number of whole days in the arrangement payment period divided by 365.

 (3) For the purposes of subsection (2):

 (a) a reference in that subsection to the eligible principal in relation to a payment portion of an arrangement payment in relation to an eligible amount is a reference to:

 (i) where the arrangement payment is the first arrangement payment in the likely application period referred to in that subsection—the residual amount in relation to the eligible amount, as ascertained at the commencement of the arrangement payment period in relation to the arrangement payment; and

 (ii) in the case of any other arrangement payment—an amount ascertained in accordance with the formula A B  +  C, where:

  A  is the eligible principal in relation to the payment portion of the immediately preceding arrangement payment;

  B  is the amount of the payment portion of the immediately preceding arrangement payment; and

  C  is the interest amount in relation to the payment portion of the immediately preceding arrangement payment; and

 (b) a reference in that subsection to the arrangement payment period in relation to an arrangement payment is a reference to:

 (i) where the arrangement payment is the first arrangement payment liable to be made in respect of the application period referred to in that subsection—the period commencing at the beginning of the application period and ending at the time at which the arrangement payment is liable to be made; and

 (ii) in the case of any other arrangement payment—the period commencing at the time at which the immediately preceding arrangement payment was liable to be made and ending at the time at which the arrangement payment concerned is liable to be made.

 (4) Where the qualifying arrangement in relation to an item of eligible property in relation to which this Division applies does not provide for the sale or disposal of the item to a person who is a party to the qualifying arrangement or to an associate, for the purposes of this section an arrangement payment (not being an assessable arrangement payment) that includes a payment portion (which portion is in this section referred to as a notional final payment portion) in relation to any eligible amount by reason of which the item is an item of eligible property shall be taken to be liable to be made at the end of the likely application period of an amount equal to:

 (a) where the qualifying arrangement is a qualifying arrangement by reason of the application of subparagraph 159GG(1)(a)(i)—so much of the guaranteed residual value referred to in that subparagraph as is attributable to the eligible amount; or

 (b) in any other case—the amount that in the opinion of the Commissioner was, or would have been, at the commencement of the application period, the market value at the end of the application period of so much of the item of eligible property as is attributable to the eligible amount.

 (5) Where an amount of eligible capital expenditure is incurred in relation to an item of eligible property at any time after this Division commences to apply in relation to the item of eligible property, this section applies in respect of that expenditure as if this Division had commenced to apply in relation to the item of eligible property at the time at which the expenditure was incurred.

 (6) In this section:

 (a) likely application period, in relation to an application of this Division, means the period that, having regard to the provisions of the qualifying arrangement referred to in section 159GH and to any other relevant circumstances, was, at the time at which that application of this Division commenced, the likely length of the application period; and

 (b) likely arrangement payment, in relation to a likely application period, means an arrangement payment that, having regard to the provisions of the qualifying arrangement referred to in section 159GH and to any other relevant circumstances, was, at the time at which the likely application period commenced, likely to become liable to be made during the likely application period.

159GL  Special provision relating to Division 10C or 10D property

 (1) If:

 (a) section 159GH applies in relation to an item of Division 10C or 10D property; and

 (b) at the time at which that section commenced to apply in relation to the item of property, the sum of the present values of the net Division 16D amounts, for each year of income during which the whole or a part of the likely application period occurs, in relation to an amount of expenditure by reason of which the property is Division 10C or 10D property will be less than the sum of the present values, at that time, of the net Division 10C or 10D amounts for each such year of income in relation to the expenditure;

sections 159GJ and 159GK do not apply in relation to the amount of expenditure in relation to the application period.

 (2) In subsection (1):

 (a) a reference to the net Division 10C or 10D amounts for a year of income in relation to an amount of expenditure by reason of which an item of property is Division 10C or 10D property is a reference to the sum of the payment portions of any assessable arrangement payments likely to become liable to be made in relation to the amount of expenditure in relation to that year of income reduced by the deduction (if any) that, but for this Division, would be allowable under the former Division 10C or 10D of this Part, or under Division 43 of the Income Tax Assessment Act 1997, for the year of income in respect of the amount of expenditure;

 (b) a reference to the net Division 16D amounts for a year of income in relation to an amount of expenditure by reason of which an item of property is Division 10C or 10D property is a reference to the sum of so much of the payment portions of any assessable arrangement payments likely to become liable to be made during the year of income in relation to the amount of expenditure as would, but for this section, be included in the assessable income of any taxpayer of the year of income under section 159GK; and

 (c) likely application period has the same meaning as in section 159GK.

159GM  Special provision where cost of plant etc. is also eligible capital expenditure

  Where:

 (a) at a particular time (in this section referred to as the relevant time) an item of eligible property is both eligible depreciation property and eligible capital expenditure property; and

 (b) the expenditure by reason of which the item of property is eligible capital expenditure property is the amount that:

 (i) was the cost of the item of property to the taxpayer who incurred the expenditure for the purpose of the former Subdivision 42B, or Subdivision 40C, of the Income Tax Assessment Act 1997; or

 (ii) would have been the cost to the taxpayer for the purpose of that Subdivision if it applied in relation to the item of property;

for the purpose of ascertaining the residual amount at the relevant time in relation to the amount of expenditure:

 (c) if a capital expenditure deduction would, apart from this Division, be allowable to a taxpayer in respect of the amount of eligible capital expenditure in relation to the year of income in which the relevant time occurs—the item of eligible property shall be taken to be at the relevant time an item of eligible capital expenditure property and not an item of eligible depreciation property; and

 (d) in any other case—the item of eligible property shall be taken to be at the relevant time an item of eligible depreciation property and not an item of eligible capital expenditure property.

159GN  Effect of use of property under qualifying arrangement for producing assessable income

 (1) Where:

 (a) this Division applies in relation to an item of eligible property by reason of the application of subparagraph 159GH(1)(b)(i) in relation to the use by an exempt public body, or the control by an exempt public body of the use, of the item of eligible property under a qualifying arrangement;

 (b) the exempt public body jointly uses, or jointly controls the use of, the item of eligible property together with another person, or one or more other persons, who are not exempt public bodies;

 (c) the item of eligible property is or will be used during the arrangement period in relation to the qualifying arrangement for producing income of an amount that, having regard to the provisions of the qualifying arrangement and any other relevant circumstances, is not likely to be less than the total amount of the arrangement payments under the qualifying arrangement in relation to the item of eligible property; and

 (d) the income, or a part of the income, referred to in paragraph (c) will be included in the assessable income of one or more persons (which person, or each of which persons, is in this subsection referred to as an assessable person);

the following provisions have effect:

 (e) where all of the income referred to in paragraph (c) will be included in the assessable income of one or more persons—sections 159GJ and 159GK do not apply in relation to the item of eligible property;

 (f) where paragraph (e) does not apply:

 (i) there is allowable to a taxpayer so much of any deduction that, but for this section, would not, by reason of the application of section 159GJ, be allowable to the taxpayer in relation to any eligible amount in relation to the item of eligible property in respect of the application period as is ascertained in accordance with the formula AB, where:

  A  is the amount of the deduction that, but for this section would not, by reason of the application of section 159GJ, be allowable to the taxpayer; and

  B  is the assessable person fraction for the purposes of the application of this Division concerned;

 (ii) for the purposes of section 159GJ, a reference in that section to the total notional principal in relation to an eligible amount in relation to the item of eligible property in respect of the application period shall be taken to be a reference to the amount that, but for this subparagraph, would be the total notional principal, as increased by the amount of any deduction allowable under subparagraph (i) of this paragraph in relation to the eligible amount in respect of the application period; and

 (iii) for the purposes of the application of section 159GK, any eligible amount in relation to the item of property in respect of the application period shall be ascertained in accordance with the formula AB, where:

  A  is the amount that, but for this section, would be the eligible amount; and

  B  is the nonassessable person fraction in relation to the application of this Division concerned.

 (2) For the purposes of subsection (1):

 (a) a reference in that subsection to the assessable person fraction in relation to an application of this Division in relation to an item of eligible property is a reference to the interest of all of the assessable persons in the income referred to in paragraph (1)(c) expressed as a fraction of the interests of all of the persons entitled to that income; and

 (b) a reference in that subsection to the nonassessable person fraction in relation to an application of this Division in relation to an item of eligible property is a reference to the fraction ascertained by subtracting the assessable person fraction in relation to that application of this Division in relation to the item of eligible property from the number 1.

 (3) Where:

 (a) this Division applies in relation to an item of eligible property by reason of the application of subparagraph 159GH(1)(b)(ii) in relation to the use of the item of property outside Australia partly for the purpose of producing exempt income; and

 (b) that use is also partly for the purpose of producing assessable income;

the following provisions have effect:

 (c) there is allowable to a taxpayer so much of any deduction that, but for this section, would not, by reason of the application of section 159GJ, be allowable to the taxpayer in relation to any eligible amount in relation to the item of eligible property in respect of the application period as is ascertained in accordance with the formula AB, where:

  A  is the amount of the deduction that, but for this section would not, by reason of the application of section 159GJ, be allowable to the taxpayer; and

  B  is the assessable income fraction for the purposes of the application of this Division concerned;

 (d) for the purposes of section 159GJ, a reference in that section to the total notional principal in relation to an eligible amount in relation to the item of eligible property in respect of the application period shall be taken to be a reference to the amount that, but for this paragraph, would be the total notional principal, as increased by the amount of any deduction allowable under paragraph (c) of this subsection in relation to the eligible amount in respect of the application period; and

 (e) for the purposes of the application of section 159GK, any eligible amount in relation to the item of property in respect of the application period shall be ascertained in accordance with the formula AB, where:

  A  is the amount that, but for this section, would be the eligible amount; and

  B  is the exempt income fraction in relation to the application of this Division concerned.

 (4) For the purposes of subsection (3):

 (a) a reference in that subsection to the assessable income fraction in relation to an application of this Division in relation to an item of eligible property is a reference to the amount of the assessable income referred to in paragraph (3)(b) expressed as a fraction of the sum of that assessable income and the exempt income referred to in paragraph (3)(a); and

 (b) a reference in that subsection to the exempt income fraction in relation to an application of this Division in relation to an item of eligible property is a reference to the fraction ascertained by subtracting the assessable income fraction in relation to that application of this Division in relation to the item of eligible property from the number 1.

159GO  Special provisions relating to partnerships

 (1) Where:

 (a) the individual interest of a taxpayer in the net income of a partnership has been or is to be included in the assessable income of the taxpayer of a year of income (in this subsection referred to as the relevant year of income), or the individual interest of a taxpayer in a partnership loss has been allowed or is allowable as a deduction from the assessable income of the taxpayer of a year of income (in this subsection also referred to as the relevant year of income);

 (b) either a deduction or an arrangement payment, or both, were taken into account in calculating that net income or partnership loss;

 (c) the deduction or a part of the deduction (which deduction or part of the deduction, as the case may be, is referred to in this subsection as the relevant deduction), or the arrangement payment or a part of the arrangement payment (which arrangement payment or part of the arrangement payment, as the case may be, is referred to in this subsection as the relevant arrangement payment) would not have been taken into account for the purpose of that calculation if this Division applied in relation to the partnership in relation to particular property that is arrangement property in relation to a qualifying arrangement;

 (d) this Division does not apply in relation to the partnership in relation to the property by reason only that the qualifying arrangement was entered into before the time (in this subsection referred to as the earliest application time) referred to in whichever subparagraph of paragraph 159GH(1)(b) would be applicable if this Division applied as mentioned in paragraph (c); and

 (e) the taxpayer became a partner in the partnership under a contract entered into by the taxpayer after the earliest application time;

the following provisions have effect:

 (f) there shall be included in the assessable income of the taxpayer of the relevant year of income an amount that bears to the amount of the relevant deduction the same proportion as the individual interest of the taxpayer in that net income bears to that net income or, as the case requires, as the individual interest of the taxpayer in that partnership loss bears to that partnership loss;

 (g) there shall be allowable as a deduction in the assessment of the taxpayer of the relevant year of income an amount that bears to the amount of the relevant arrangement payment the same proportion as the individual interest of the taxpayer in that net income bears to that net income or, as the case requires, as the individual interest of the taxpayer in that partnership loss bears to that partnership loss.

 (2) Where:

 (a) the individual interest of a taxpayer in the net income of a partnership has been or is to be included in the assessable income of the taxpayer of a year of income (in this subsection referred to as the relevant year of income), or the individual interest of a taxpayer in a partnership loss has been allowed or is allowable as a deduction from the assessable income of the taxpayer of a year of income (in this subsection also referred to as the relevant year of income);

 (b) either a deduction or an arrangement payment, or both, were taken into account in calculating that net income or partnership loss;

 (c) the deduction or a part of the deduction (which deduction or part of the deduction, as the case may be, is referred to in this subsection as the relevant deduction), or the arrangement payment or a part of the arrangement payment (which arrangement payment or part of the arrangement payment, as the case may be, is referred to in this subsection as the relevant arrangement payment), would not have been taken into account for the purpose of that calculation if this Division applied in relation to the partnership in relation to particular property that is arrangement property in relation to a qualifying arrangement;

 (d) this Division does not apply in relation to the partnership in relation to the property by reason only that the qualifying arrangement was entered into before the time (in this subsection referred to as the earliest application time) referred to in whichever subparagraph of paragraph 159GH(1)(b) would be applicable if this Division applied as mentioned in paragraph (c);

 (e) the taxpayer became a partner in the partnership under a contract entered into by the taxpayer before the earliest application time;

 (f) after the earliest application time, the taxpayer made or agreed to make a contribution or contributions (which contribution is or contributions are in this subsection referred to as the additional contribution) to the capital of the partnership in addition to any contribution or contributions to the capital of the partnership that, under a contract or contracts entered into at or before that time, the taxpayer had made or agreed to make; and

 (g) by reason of making or agreeing to make the additional contribution, the individual interest of the taxpayer in that net income or partnership loss, being that individual interest expressed as a fraction of the aggregate of the individual interests of the partners in that net income or partnership loss, is greater than it would otherwise have been;

the following provisions have effect:

 (h) where a deduction was taken into account in calculating that net income or partnership loss—there shall be included in the assessable income of the taxpayer of the relevant year of income an amount ascertained in accordance with the formula A (B – C);

 (j) where an arrangement payment was taken into account in calculating that net income or partnership loss—there shall be allowable as a deduction in the assessment of the taxpayer of the relevant year of income an amount ascertained in accordance with the formula A (B – C);

where:

  A  is the amount of the relevant deduction or of the relevant arrangement payment, as the case requires;

  B  is the individual interest of the taxpayer in that net income or partnership loss, being that individual interest expressed as a fraction of the aggregate of the individual interests of the partners in that net income or partnership loss; and

  C  is the fraction that would be B if that fraction were ascertained on the basis of the individual interests of the partners immediately before the earliest application time and the net income or partnership loss at that time were equal to the net income or partnership loss of the relevant year of income.


Division 16EAccruals assessability etc. in respect of certain security payments

159GP  Interpretation

 (1) In this Division, unless the contrary intention appears:

accrual amount has the meaning given by subsection 159GQB(1).

accrual period has the meaning given by section 159GQA.

agreement has the same meaning as in Subdivision D of Division 3.

annuity has the same meaning as in section 10 of the Superannuation Industry (Supervision) Act 1993.

associate has the same meaning as in Subdivision D of Division 3.

eligible return has the meaning given by subsection (3).

fixed return security means a qualifying security under which the amount or amounts payable are or consist of:

 (a) a specified amount or specified amounts;

 (b) an amount or amounts the method of calculation of which does not involve an interest or indexation rate or other factor, being a rate or factor that varies or may vary during the term of the security; or

 (c) any combination of amounts referred to in paragraph (a) or (b).

holder, in relation to a security at a particular time, means the person who, if the amount or amounts payable under the security were due and payable at that time, would be entitled to receive payment of the amount or amounts.

implicit interest rate has the meaning given by subsection 159GQB(2).

ineligible annuity means an annuity issued by a life assurance company to or for the benefit of a natural person other than in the capacity of trustee of a trust estate.

issue, in relation to a security other than a bill of exchange, means the creation of the liability to pay an amount or amounts under the security.

issue price, in relation to a security, means the consideration (if any) for the issue of the security.

issuer, in relation to a security (other than a bill of exchange) at a particular time, means the person who, if the amount or amounts payable under the security were due and payable at that time, would be liable to pay the amount or amounts.

partial redemption, in relation to a security, means the discharging of a part (other than the final part) of a liability to pay an amount or amounts under the security representing a return of the issue price of the security.

partial redemption payment, in relation to a security, means a payment that has the effect of partially redeeming the security.

qualifying security means any security:

 (a) that is issued after 16 December 1984;

 (b) that is not a prescribed security within the meaning of section 26C;

 (ba) that is not part of an exempt series (see subsection (9A));

 (c) the term of which, ascertained as at the time of issue of the security will, or is reasonably likely to, exceed 1 year;

 (d) that has an eligible return; and

 (e) where the precise amount of the eligible return is able to be ascertained at the time of issue of the security—in relation to which the amount of the eligible return is greater than 1½% of the amount ascertained by multiplying the amount of the payment or the sum of the payments (excluding any periodic interest) liable to be made under the security by the number (including any fraction) of years in the term of the security;

but does not, except as provided by subsection (10), include an annuity.

redemption, in relation to a security, means the discharging of all liability to pay any amount or amounts under the security representing a return of the issue price of the security.

redemption payment, in relation to a security, means any payment that has the effect of redeeming the security.

security means:

 (a) stock, a bond, debenture, certificate of entitlement, bill of exchange, promissory note or other security;

 (b) a deposit with a bank or other financial institution;

 (c) a secured or unsecured loan; or

 (d) any other contract, whether or not in writing, under which a person is liable to pay an amount or amounts, whether or not the liability is secured.

taxpayer’s maximum term, in relation to a security held by a taxpayer, means:

 (a) if the security was issued to the taxpayer—the term of the security; or

 (b) if the security was transferred to the taxpayer—the part of the term remaining after the transfer.

term, in relation to a security, means the period from the issue of the security until the time at which the liability to make the payment or final payment or payments, as the case requires, under the security arises.

transfer, in relation to a security, means transfer, sell, assign or dispose in any way of the security or of the right to receive payment of the amount or amounts payable under the security, but does not include a redemption or partial redemption of the security.

transfer price, in relation to the transfer of a security, means the consideration (if any) for the transfer of the security.

variable return security means a qualifying security that is not a fixed return security.

 (2) Where:

 (a) the Commissioner, having regard to any connection between the parties to the issue or transfer of a security and to any other relevant circumstances, is satisfied that the parties were not dealing with each other at arm’s length in relation to the issue or transfer; and

 (b) the Commissioner determines that this subsection should apply in relation to the issue or transfer;

then, for the purposes of the application of the definition of issue price or transfer price, as the case may be, in subsection (1) in relation to the issue or transfer, the consideration for the issue or transfer shall be taken to be equal to:

 (c) the consideration that might reasonably be expected for the issue or transfer if the parties to the issue or transfer were independent parties dealing at arm’s length with each other in relation to the issue or transfer; or

 (d) where, for any reason (including an insufficiency of information available to the Commissioner), it is not possible or not practicable for the Commissioner to ascertain the amount referred to in paragraph (c)—such amount as the Commissioner determines.

 (3) For the purposes of this Division, there shall be taken to be an eligible return in relation to a security if at the time when the security is issued it is reasonably likely, by reason that the security was issued at a discount, bears deferred interest or is capital indexed or for any other reason, having regard to the terms of the security, for the sum of all payments (other than periodic interest payments) under the security to exceed the issue price of the security, and the amount of the eligible return is the amount of the excess.

 (6) For the purposes of this Division, where an amount of interest is payable under a security, the amount shall be taken to be periodic interest if the period between the commencement of the period in respect of which the interest is expressed to be payable and the time at which the interest is payable is less than or equal to one year.

 (7) Where:

 (a) but for this subsection, an amount of interest payable under a security would, by reason of the application of subsection (6), be taken, for the purposes of this Division, to be periodic interest; and

 (b) the Commissioner, having regard to the amount of the interest, considers that it is properly attributable to a period in excess of one year;

then, for purposes of the application of this Division:

 (c) the amount of interest shall not be taken to be periodic interest; and

 (d) the amount of interest shall be taken to be attributable to the period to which the Commissioner considers it is properly attributable.

 (8) Where 2 or more of the amounts payable under a security are payable to different persons and in return for consideration given by different persons, the 2 or more amounts shall, for the purposes of this Division, be taken to be payable under a separate security having such of the terms of the firstmentioned security as are relevant.

 (9) For the purposes of the application of this Division in relation to the holding of a security acquired by a taxpayer on transfer, any prior holding of the security by the taxpayer, whether on issue or transfer, shall be disregarded.

 (9A) For the purposes of paragraph (ba) of the definition of qualifying security in subsection (1), if:

 (a) after 16 December 1984, a person issues a security (the first in the series) that is not a qualifying security; and

 (b) during the period from the end of 16 December 1984 until the issuing of the first in the series, the person did not issue any qualifying security with exactly the same payment dates, payment amounts and other terms as the first in the series; and

 (c) after issuing the first in the series, the person issues another security (the later security) with exactly the same payment dates, payment amounts and other terms as the first in the series;

the later security is part of an exempt series.

 (9B) In determining for the purposes of paragraph (9A)(b) or (c) whether a security has exactly the same other terms as another security, the fact that the firstmentioned security has a different issue price than the secondmentioned security is to be disregarded.

 (10) Where:

 (a) an annuity is issued on or after 29 October 1987;

 (b) the requirements of paragraphs (b) to (e) (inclusive) of the definition of qualifying security in subsection (1) are satisfied in relation to the annuity; and

 (c) the annuity is not an ineligible annuity;

the annuity is a qualifying security for the purposes of this Division.

159GQ  Tax treatment of holder of qualifying security

Accrual amounts to be worked out

 (1) If a taxpayer holds a qualifying security for all or part of a year of income, the effect on the taxpayer’s taxable income is determined by working out the accrual amount (see section 159GQB) for each accrual period (see section 159GQA) in the year of income and then summing the accrual amounts.

Positive sum assessable

 (2) If the sum is a positive amount, the amount is included in the assessable income of the taxpayer of the year of income.

Negative sum deductible

 (3) If the sum is a negative amount, a deduction of the amount is allowable in the assessment of the taxpayer of the year of income.

159GQA  Accrual period

Taxpayer’s maximum term to be divided into accrual periods

 (1) The taxpayer’s maximum term for the qualifying security is divided into accrual periods in accordance with this section.

Whole year of income

 (2) If a year of income is wholly taken up by any of the taxpayer’s maximum term, the year of income is divided into 2 accrual periods of 6 months.

Beginning of taxpayer’s maximum term

 (3) If the taxpayer’s maximum term begins after the beginning of the year of income:

 (a) if it begins less than 6 months after the beginning of the year of income—the period from the beginning of the taxpayer’s maximum term until the middle of the year of income is an accrual period and the second 6 months of the year of income is an accrual period; and

 (b) in any other case—the part of the year of income taken up by the taxpayer’s maximum term is an accrual period.

End of taxpayer’s maximum term

 (4) If the taxpayer’s maximum term ends before the end of a year of income:

 (a) if it ends no later than 6 months after the beginning of the year of income—the part of the year of income taken up by the taxpayer’s maximum term is an accrual period; and

 (b) in any other case—the first 6 months of the year of income is an accrual period and the period from the middle of the year of income until the end of the taxpayer’s maximum term is an accrual period.

Example

 (5) For example, if the taxpayer’s year of income is a financial year and a security with a 2 year term is issued to the taxpayer on 1 April, the accrual periods will be as follows:

 

1st year

2nd year

3rd year

of  income

of income

of income

1 Apr.

      1 July

   1 Jan.

 1 July

1 Jan.

1 Apr.

 

 

 

 

 

3 month

6 month

6 month

6 month

3 month

accrual

accrual

accrual

accrual

accrual

period

period

period

period

period

159GQB  Accrual amount

Formula

 (1) The accrual amount for an accrual period is worked out using the formula:

Implicit interest rate

 (2) In the formula in subsection (1), Implicit interest rate means the rate of interest worked out under section 159GQC (for a fixed return security) or 159GQD (for a variable return security), properly adjusted to take account of the case where the accrual period is less than 6 months.

Opening balance

 (3) In the formula in subsection (1), Opening balance means the amount worked out using the formula:

Issue/transfer price + Previous accruals – Payments

where:

Issue/transfer price means the issue price or transfer price, as the case requires, of the security; and

Previous accruals means:

 (a) if paragraph (b) does not apply—the sum, whether positive or negative, of all accrual amounts for previous accrual periods in the taxpayer’s maximum term; or

 (b) if the accrual period is the first in the taxpayer’s maximum term—nil; and

Payments means all payments (other than of periodic interest) made or liable to be made under the security during all previous accrual periods in the taxpayer’s maximum term.

Periodic interest etc.

 (4) In the formula in subsection (1), Periodic interest etc. means the sum of:

 (a) all periodic interest payments made or liable to be made under the security during the accrual period, properly adjusted in the case of any payment made other than at the end of the period; and

 (b) if any payments (other than of periodic interest) made or liable to be made under the security during the accrual period are made or liable to be made other than at its end—an amount to adjust properly for the making of the payments other than at the end of the period.

159GQC  Implicit interest rate for fixed return security

  For the purposes of the formula component Implicit interest rate in subsection 159GQB(1), the rate of interest for a fixed return security in relation to a taxpayer is the rate of compound interest per period of 6 months at which:

 (a) the sum of the present values of all amounts payable under the security during the taxpayer’s maximum term;

equals:

 (b) the issue price or the transfer price, as the case requires, of the security.

159GQD  Implicit interest rate for variable return security

Implicit interest rate to be recalculated each year etc.

 (1) For the purposes of the formula component Implicit interest rate in subsection 159GQB(1), the rate of interest for a variable return security must be worked out in accordance with subsection (2) separately for each year of income during the taxpayer’s maximum term. If there are 2 accrual periods of 6 months in the year of income, the rate is the same for both periods. It is possible for the rate to be negative.

Rate

 (2) The rate applicable in relation to a year of income is the rate of compound interest per period of 6 months in the calculation period (see subsection (3)) at which:

 (a) the sum of the present values of all amounts payable under the security during the calculation period;

equals:

 (b) the opening balance, mentioned in subsection 159GQB(1), for the accrual period that begins the calculation period.

Calculation period

 (3) The calculation period means the part of the taxpayer’s maximum term that occurs after the beginning of the year of income.

Where amount payable is not known

 (4) For the purposes of paragraph (2)(a), if by the end of the year of income it is not possible to determine whether an amount will be payable, or the size of the amount that will be payable, after the end of the year of income, the determination is to be made by applying subsection (5), (7) or (11), or a combination of those subsections.

Assumption of constant level

 (5) Subject to subsection (7), if an amount payable is worked out to any extent by reference to the amount or level, at a particular time, of a rate, price, index or other thing, it is to be assumed that the rate, price, index or thing will be the same at all times after the end of the year of income as it was at the end of the year of income (or, if it was not available at the end of the year of income, at the time when it was last available in the year of income).

Examples

 (6) For the purposes of subsection (5):

 (a) an example of an amount worked out wholly by reference to the amount of a rate at a particular time is an interest payment under a floating rate note. The amount payable is the product of an interest rate indicator (such as the prevailing bank bill rate) and the face or par value of the note; and

 (b) an example of an amount worked out wholly by reference to the amount of a price at a particular time is a redemption payment under a commodity linked security where the amount of the payment is the product of the prevailing price of a commodity (such as gold) and the face or par value of the security.

Assumption of continuing rate of change

 (7) If an amount payable is worked out to any extent by reference to the amount of change in an index or other thing that occurs during a period, it is to be assumed that the index or other thing will continue to change at the same rate as it did:

 (a) if the index or other thing was available at the end of the year of income—during the year of income; or

 (b) in any other case—during the period of 12 months in respect of which the index or other thing was last available in the year of income.

Example

 (8) An example for the purposes of subsection (7) is a payment whose amount is the product of the face or par value of a security and the percentage increase in the All Groups Consumer Price Index number (the CPI) during the year ending on 30 June 1995. If the year of income for which the implicit interest rate is being worked out is the 199394 year of income and the CPI increases by 2% during the year ending on 31 March 1994 (the date of the last available number during the year of income), the CPI is assumed to increase by 2% during the year ending on 30 June 1995.

Disguised continuing rate of change case

 (9) For the purposes of subsection (7), if an amount payable is worked out to any extent by reference to the quotient of:

 (a) the amount or level of an index or other thing at a particular time; and

 (b) either:

 (i) the amount or level of the index or other thing at a different time; or

 (ii) another amount that, while not expressed to be the amount or level of the index or other thing at a different time, may reasonably be regarded as representing the amount or level of the index or other thing at a different time;

the amount payable is taken to be worked out to that extent by reference to the amount of change in the index or other thing that occurs during the period between the 2 times.

Example

 (10) An example for the purposes of subsection (9) is a payment under a security issued in December 1994 that is worked out by multiplying a number of dollars by the quotient of:

 (a) the All Groups Consumer Price Index number in respect of the quarter ending on 31 December 1997; and

 (b) the number 114.

Assume that the number in paragraph (b) is the same as the All Groups Consumer Price Index number in respect of the quarter ending on 31 December 1994. In this case, it would be reasonable to regard the number as representing the amount of the index at 31 December 1994, and therefore to apply subsection (7).

General assumption

 (11) If it is not possible to make the determination mentioned in subsection (4) in respect of the whole or part of any amount by applying subsection (5) or (7), or both, (for example, because no information about a rate, price or index was available during the year of income), the determination in respect of that whole or part is to be made on the basis of what is most likely in the circumstances.

159GR  Consequences of actual payments

 (1) Where a payment (not being a payment that is, or to the extent that it consists of, a periodic interest payment, a redemption payment or a partial redemption payment) is made or liable to be made in a year of income to a taxpayer under a qualifying security:

 (a) no amount shall be included in the assessable income of the taxpayer of the year of income in respect of the payment otherwise than under section 159GQ; and

 (b) where the taxpayer acquired the qualifying security on transfer—no amount shall be allowable as a deduction from the assessable income of the taxpayer of the year of income in respect of the payment otherwise than under section 159GQ.

159GS  Balancing adjustments on transfer of qualifying security

 (1) Where there is a profit amount in relation to the transfer of a qualifying security by a taxpayer in a year of income:

 (a) if there is a net assessable amount in relation to the transfer and:

 (i) the profit amount exceeds the net assessable amount—an amount equal to the excess shall be included in the assessable income of the taxpayer of the year of income; or

 (ii) the net assessable amount exceeds the profit amount—an amount equal to the excess shall be allowable as a deduction from the assessable income of the taxpayer of the year of income; and

 (b) if there is a net deductible amount in relation to the transfer—an amount equal to the sum of that amount and the profit amount shall be included in the assessable income of the taxpayer of the year of income.

 (2) Where there is a loss amount in relation to the transfer of a qualifying security by a taxpayer in a year of income and:

 (a) there is a net assessable amount in relation to the transfer—an amount equal to the net assessable amount shall be allowable as a deduction from the assessable income of the taxpayer of the year of income; or

 (b) there is a net deductible amount in relation to the transfer that exceeds the loss amount—an amount equal to the excess shall be included in the assessable income of the taxpayer of the year of income.

 (3) For the purposes of the application of this section in relation to the transfer (in this subsection referred to as the relevant transfer) of a qualifying security by a taxpayer:

 (a) where the transfer price, as increased by the amount of any payments (other than periodic interest payments) made to the taxpayer under the security in respect of the period when the security was held by the taxpayer exceeds:

 (i) the issue price of the security; or

 (ii) where the security was acquired by the taxpayer on transfer—the transfer price in relation to that transfer;

  there shall be taken to be a profit amount in relation to the relevant transfer of an amount equal to the excess;

 (b) where the issue price of the security or, where the security was acquired by the taxpayer on transfer, the transfer price in relation to that transfer exceeds the sum of the transfer price in relation to the relevant transfer and any payments (other than periodic interest payments) made to the taxpayer under the security in respect of the period when the security was held by the taxpayer, there shall be taken to be a loss amount in relation to the relevant transfer of an amount equal to the excess;

 (c) where the sum of all amounts (if any) included under section 159GQ in the assessable income of the taxpayer in respect of the security in respect of the period when the security was held by the taxpayer exceeds the sum of all amounts (if any) allowable under those sections as deductions from the assessable income of the taxpayer in respect of the security in respect of that period, there shall be taken to be a net assessable amount in relation to the relevant transfer of an amount equal to the excess; and

 (d) where the sum of all amounts (if any) allowable under section 159GQ as deductions from the assessable income of the taxpayer in respect of the security in respect of the period when the taxpayer held the security exceeds the sum of all amounts (if any) included under those sections in the assessable income of the taxpayer in respect of the security in respect of that period, there shall be taken to be a net deductible amount in relation to the relevant transfer of an amount equal to the excess.

159GT  Tax treatment of issuer of a qualifying security

 (1) Subsections (1A) and (1B) apply if a taxpayer is an issuer of a qualifying security to which this section applies during a period (the issuer period) comprising the whole or part of a year of income.

 (1A) If, on the assumptions in subsection (1C), an amount would be included in the taxpayer’s assessable income of the year of income in respect of the issuer period, then, subject to this section, the taxpayer is entitled to a deduction in his or her assessment for the year of income equal to that amount.

 (1B) If, on the assumptions in subsection (1C), a deduction would be allowable in the taxpayer’s assessment for the year of income, then an amount equal to the deduction is included in the taxpayer’s assessable income of the year of income.

 (1C) For the purposes of subsections (1A) and (1B), the assumptions are that:

 (a) the security was issued to the taxpayer (rather than the taxpayer being the issuer of the security); and

 (b) the taxpayer held the security during the whole of the issuer period; and

 (c) the taxpayer did not transfer the security at the end of the issuer period; and

 (d) sections 159GW, 159GX and 159GY were not enacted.

 (2) A deduction is not allowable to a taxpayer under subsection (1A) in relation to a qualifying security to which this section applies unless the taxpayer would, but for this Division, be entitled to a deduction under section 81 of the Income Tax Assessment Act 1997 in respect of payments (not being redemption payments, partial redemption payments or periodic interest payments) made or liable to be made under the security in respect of the relevant period referred to in that subsection.

 (3) Where a payment (not being a payment that is, or to the extent that it consists of, a periodic interest payment, a redemption payment or a partial redemption payment) is made or liable to be made in a year of income by a taxpayer under a qualifying security to which this section applies, no amount shall be allowable as a deduction from the assessable income of the taxpayer of the year of income in respect of the payment otherwise than under this section.

 (5) Subject to subsection (6), this section applies to:

 (a) any qualifying security issued on or before 22 May 1986; and

 (b) any qualifying security issued in Australia after 22 May 1986 other than a negotiable instrument issued payable to bearer.

 (6) This section does not apply to a qualifying security issued by a taxpayer after 5 o’clock in the evening, by standard time in the Australian Capital Territory, on 23 April 1987:

 (a) to, on behalf of or otherwise for the benefit of, a nonresident or a prescribed dual resident associate of the taxpayer; or

 (b) subject to an agreement between the taxpayer and an associate of the taxpayer under which the security is or was to be transferred to a nonresident or a prescribed dual resident associate of the taxpayer.

159GU  Effect of Division on certain transfer profits and losses

 (1) Where, apart from this Division, a profit that is made by a resident taxpayer in relation to a transfer of a qualifying security that does not form part of the trading stock of the taxpayer would be included in the assessable income of the taxpayer of a year of income, the profit shall not be so included in the assessable income of the taxpayer.

 (2) Where, apart from this Division, a loss that is incurred by a resident taxpayer in relation to a transfer of a qualifying security that does not form part of the trading stock of the taxpayer would be allowable as a deduction from the assessable income of the taxpayer of a year of income and there is a net deductible amount, within the meaning of section 159GS, in relation to the transfer, so much only of the amount of the loss as exceeds the net deductible amount shall be so allowable as a deduction.

159GV  Consequence of variation of terms of security

 (1) Where, after 22 May 1986, a material variation is made in the terms of a security, for the purposes of the application of this Division in relation to the security in respect of the period after the variation and before any subsequent material variation:

 (a) the security shall be taken to have been issued on the terms on which it was originally issued as varied by the material variation and any prior variation;

 (b) where consideration for the variation is paid or payable by the holder of the security—the issue price of the security shall be taken to be an amount equal to the amount that was the issue price of the security immediately before this application of this subsection increased by the amount of that consideration;

 (c) where consideration for the variation is paid or payable by the issuer of the security—the issue price of the security shall be taken to be an amount equal to the amount that was the issue price of the security immediately before this application of this subsection reduced by the amount of that consideration; and

 (d) paragraph (a) of the definition of qualifying security in subsection 159GP(1) shall be disregarded.

 (2) Where:

 (a) subsection (1) applies in relation to a security held by a taxpayer in relation to a material variation in the terms of the security; and

 (b) if:

 (i) that subsection had effect not only in relation to the period after the variation but also in relation to the whole of the term of the security before the variation; and

 (ii) any previous material variations were taken into account but any subsequent material variations were disregarded;

  the sum (in this subsection referred to as the  total notional taxable income) of the taxable incomes of the taxpayer in respect of the year of income in which the variation is made and all previous years of income would have differed from the sum (in this subsection referred to as the  total actual taxable income) of the actual taxable incomes of the taxpayer of those years of income;

the following provisions have effect:

 (c) where the total notional taxable income exceeds the total actual taxable income—an amount equal to the excess shall be included in the assessable income of the taxpayer of the year of income in which the variation is made;

 (d) where the total actual taxable income exceeds the total notional taxable income—an amount equal to the excess shall be allowable as a deduction from the assessable income of the taxpayer of the year of income in which the variation is made.

 (3) In this section, a reference to a material variation of the terms of a security is a reference to a variation of the terms of the security:

 (a) that has the effect that a security that was not a qualifying security before the variation would, if the security had been originally issued with the terms as varied and if paragraph (a) of the definition of qualifying security in subsection 159GP(1) were disregarded, have been a qualifying security when the security was issued;

 (b) that has the effect that a security that is a qualifying security would, if originally issued with the terms as varied, not have been a qualifying security at the time of issue; or

 (c) that has the effect that the amount, or time of making, of a payment under the security, or that the holder or issuer of the security, is varied.

 (4) Where any right or option under a security to extend the term of, or otherwise vary the effect of, the security is exercised, then, for the purposes of this section, the exercise of that right or option shall be taken to be a variation of the terms of the security to provide for the extension or other effect.

159GW  Effect of Division in relation to nonresidents

 (1) Subject to subsection (2), where during the whole or a part of a year of income (which whole or part is in this subsection referred to as the period of nonresidence) a taxpayer is not a resident:

 (a) no amount shall be included in, or allowable as a deduction from, the assessable income of the taxpayer of the year of income under section 159GQ in relation to the period of nonresidence; and

 (c) no amount shall be included in, or allowable as a deduction from, the assessable income of the taxpayer of the year of income under section 159GS in relation to any transfer of the security that occurred during the period of nonresidence.

 (2) Where:

 (a) a payment is made or liable to be made under a qualifying security to a resident taxpayer; and

 (b) the taxpayer was not a resident for the whole or a part (which whole or part is in this subsection referred to as the period of nonresidence) of the period during which the taxpayer held the security;

the following provisions have effect:

 (c) there shall be included in the assessable income of the taxpayer of the year of income in which the payment is made or liable to be made an amount equal to the amount that, but for subsection (1), would have been included in the assessable income of the taxpayer of any year or years of income under section 159GQ in respect of the payment in respect of the period of nonresidence;

 (d) there shall be allowable as a deduction from the assessable income of the taxpayer of the year of income in which the payment is made or liable to be made an amount equal to the amount that, but for subsection (1), would have been allowable as a deduction from the assessable income of the taxpayer of any year or years of income under section 159GQ in respect of the payment in respect of the period of nonresidence.

159GX  Effect of Division where certain payments not assessable

  Where, but for this section, an amount would be included in, or allowable as a deduction from, the assessable income of a taxpayer of a year of income under section 159GQ in respect of the whole or a part of a payment under a qualifying security, no amount shall be so included or allowable unless the payment or a part of the payment, when actually made or liable to be made, would, disregarding section 128D, be included in the assessable income of the taxpayer of a year of income.

159GY  Effect of Division where qualifying security is trading stock

  No amount shall be included in, or allowable as a deduction from, the assessable income of a taxpayer:

 (a) under section 159GQ in relation to a qualifying security in respect of any year or part of a year of income during which the qualifying security forms part of the trading stock of the taxpayer; or

 (c) under section 159GS in relation to the transfer of a qualifying security by the taxpayer where, immediately before the transfer, the qualifying security was or formed part of the trading stock of the taxpayer.

159GZ  Stripped securities

 (1) Where:

 (a) at any time a taxpayer acquires or acquired a security (in this subsection referred to as the underlying security) in relation to which there are or were 2 or more payment rights; and

 (b) the taxpayer transfers or transferred one or some but not all of those rights to a particular person or particular persons jointly;

for the purposes of the application of this Division (including any subsequent application of this subsection) in relation to any period after the transfer of the right or rights:

 (c) instead of the underlying security, there shall be taken to have been originally issued:

 (i) a separate security under which the payment right or payment rights transferred to the person or persons referred to in paragraph (b) were created;

 (ii) where at the time at which that right or those rights were transferred, another payment right or other payment rights in relation to the underlying security was or were transferred to another person or to other persons jointly—a separate security under which that other right or those other rights were created; and

 (iii) where immediately after the transfer the taxpayer retains or retained any payment right or rights—a separate security under which that right or those rights were created;

 (d) where the underlying security was issued to the taxpayer—the issue price of each separate security referred to in paragraph (c) shall be taken to be so much of the issue price of the underlying security as bears to that amount the proportion that the market value of the separate security at the time of issue of the underlying security bears to the market value of the underlying security at that time; and

 (e) where the underlying security was acquired by the taxpayer on transfer—the transfer price, in relation to that transfer, of each separate security referred to in paragraph (c) shall be taken to be so much of the transfer price of the underlying security as bears to that amount the proportion that the market value of the separate security at the time of transfer bears to the market value of the underlying security at that time.

 (2) Where, by reason of the application of subsection (1) in relation to the transfer after 16 December 1984 of a payment right or payment rights in relation to a security to a particular person or particular persons jointly, the payment right or rights is or are taken to comprise a separate security, then, for the purposes of the application of this Division in relation to the separate security in relation to any period after the transfer, paragraph (a) of the definition of qualifying security in subsection 159GP(1) shall be disregarded.

 (3) In subsections (1) and (2), payment right, in relation to a security, means a right to receive a particular payment that is liable to be made under the security.

 (4) Where:

 (a) at any time a taxpayer acquires or acquired a security (in this subsection referred to as the underlying security) on issue or transfer;

 (b) after 16 December 1984, the taxpayer issues a qualifying security (in this subsection referred to as the stripped security); and

 (c) but for this subsection, a deduction of an amount equal to the whole or a part of the issue price or, where the underlying security was acquired on transfer, the transfer price of the underlying security would be allowable from the assessable income of the taxpayer of the year of income in which the taxpayer issues the stripped security in respect of the issue of the stripped security;

the amount of the deduction allowable shall be an amount that bears to the issue price or transfer price, as the case may be, of the underlying security the same proportion as the market value of the stripped security at the time of issue or purchase, as the case may be, bears to the market value of the underlying security at that time.


Division 16JEffect of cancellation of subsidiary’s shares in holding company

159GZZZC  Interpretation—general

 (1) In this Division:

associate has the same meaning as in section 318.

cancellation includes redemption.

disposal includes cancellation.

entity means a company, a partnership or a trust estate.

precancellation period, in relation to a cancellation of shares to which this Division applies, means the period beginning when the holding company concerned became a holding company of the subsidiary concerned and ending at the time of the cancellation.

security means stock, a bond or debenture, or any other document evidencing the indebtedness of a person, whether or not the debt is secured.

 (3) For the purposes of this Division, a company is:

 (a) a subsidiary of another company; or

 (b) the holding company of another company;

if the firstmentioned company is such for the purposes of the Corporations Act 2001.

 (4) For the purposes of this Division, a reference to an interest in an entity is a reference to a legal or equitable interest in:

 (a) if the entity is a company—shares in the company;

 (b) if the entity is a partnership—capital or profits of the partnership;

 (c) if the entity is a trust estate—corpus or income of the trust estate; or

 (d) in any case—securities issued by the entity.

159GZZZD  Meaning of eligible entity, eligible interest and eligible proportion

  For the purposes of this Division, where a holding company holds interests in a subsidiary of the holding company either directly or indirectly through interposed entities:

 (a) a reference to an eligible entity in relation to the holding company and the subsidiary is a reference to the holding company or any of the interposed entities;

 (b) a reference to an eligible interest of an eligible entity is a reference to any interest held by the eligible entity directly in the subsidiary or directly in any other eligible entity in relation to the holding company and the subsidiary; and

 (c) a reference to the eligible proportion in relation to an eligible interest of an eligible entity is a reference to the proportion of the total interests held directly in the subsidiary by all persons and entities that is represented by:

 (i) if the eligible entity holds the eligible interest directly in the subsidiary—the eligible interest; or

 (ii) if, by virtue of holding the eligible interest, the eligible entity holds an interest in the subsidiary indirectly through another eligible entity or other eligible entities—that interest in the subsidiary.

159GZZZE  Share cancellations to which this Division applies

  Where a holding company cancels shares in itself that are held by a subsidiary of that company, this Division applies to the cancellation of the shares.

159GZZZF  Effect on subsidiary of share cancellations to which this Division applies

 (1) Where:

 (a) this Division applies to a cancellation of shares; and

 (b) apart from this section, either:

 (i) the subsidiary concerned would not receive or be entitled to receive any capital proceeds in respect of the cancellation; or

 (ii) the capital proceeds that the subsidiary concerned would receive or be entitled to receive in respect of the cancellation would be less than the adjusted market value of the shares;

the following provisions have effect for the purposes of this Act:

 (c) where subparagraph (b)(i) applies—the subsidiary shall be taken to have received or to be entitled to receive, as capital proceeds in respect of the cancellation, an amount equal to the adjusted market value of the shares;

 (d) where subparagraph (b)(ii) applies—the amount of the capital proceeds that the subsidiary receives or is entitled to receive in respect of the cancellation shall be taken to be increased by an amount so that it equals the adjusted market value of the shares.

 (2) For the purposes of subsection (1), the adjusted market value of the shares is the amount that would have been their market value at the time of the cancellation if the cancellation did not occur and was never proposed to occur.

159GZZZG  Precancellation disposals of eligible interests

 (1) Where:

 (a) this Division applies to a cancellation of shares;

 (b) during the precancellation period, there is a disposal of an eligible interest held by an eligible entity in relation to the holding company and the subsidiary concerned; and

 (c) apart from this section, either:

 (i) the eligible entity would not have received or been entitled to receive any capital proceeds in respect of the disposal; or

 (ii) the capital proceeds that the eligible entity would have received or been entitled to receive in respect of the disposal would have been less than the adjusted market value of the eligible interest;

the following provisions have effect for the purposes of this Act:

 (d) where subparagraph (c)(i) applies—the eligible entity shall be taken to have received or to have been entitled to receive, as capital proceeds in respect of the disposal, an amount equal to the adjusted market value of the eligible interest;

 (e) where subparagraph (c)(ii) applies—the amount of the capital proceeds that the eligible entity received or was entitled to receive in respect of the disposal shall be taken to be increased by an amount so that it equals the adjusted market value of the eligible interest.

 (2) For the purposes of subsection (1), the adjusted market value of the eligible interest is the amount that would have been its market value at the time of the disposal if the cancellation of the shares to which this Division applies did not occur and was never proposed to occur.

159GZZZH  Postcancellation disposals of eligible interests etc.

 (1) Where:

 (a) as a result of the application of section 159GZZZF in relation to a cancellation of shares, the subsidiary concerned is taken to have received or to be entitled to receive an amount of capital proceeds or an increase in an amount of capital proceeds (which amount or increase is in this section called the cancellation adjustment amount) in relation to the cancellation of the shares; and

 (b) an eligible entity in relation to the holding company and the subsidiary concerned holds an eligible interest at the time of the share cancellation;

then this section applies in relation to the eligible interest.

 (2) For the purposes of this Act (other than Parts 31 and 33 of the Income Tax Assessment Act 1997):

 (a) if the eligible interest is not trading stock—in determining:

 (i) the amount of any deduction allowed or allowable to the eligible entity in respect of the acquisition of the eligible interest; or

 (ii) the amount of any profit included in, or loss allowable as a deduction from, the assessable income of the eligible entity in respect of the acquisition and any subsequent disposal of the eligible interest;

  the capital proceeds in respect of the acquisition of the eligible interest shall be taken to have been reduced by the eligible interest’s eligible proportion of the cancellation adjustment amount; and

 (b) if the eligible interest is trading stock—the capital proceeds in respect of any subsequent disposal of the eligible interest shall be taken to be increased by the eligible interest’s eligible proportion of the cancellation adjustment amount.

 (3) For the purposes of Parts 31 and 33 of the Income Tax Assessment Act 1997, if a CGT event happens in relation to the eligible interest, the cost base and reduced cost base of the eligible interest is reduced by the eligible interest’s eligible proportion of the cancellation adjustment amount.

 (5) This section applies in relation to the acquisition of the eligible interest held by the eligible entity, and to a CGT event happening in relation to the eligible interest, even if the entity was not an eligible entity, and the interest was not an eligible interest, at the time of the acquisition or CGT event.

159GZZZI  Additional application of sections 159GZZZG and 159GZZZH to associates

 (1) Subject to this section, where a natural person is an associate of a holding company (otherwise than solely because of being the trustee of a trust estate), sections 159GZZZG and 159GZZZH apply (in addition to any application apart from this application of this section) as if references in those sections to:

 (a) an eligible entity in relation to the holding company and the subsidiary concerned;

 (b) an eligible interest of such an entity; or

 (c) the eligible proportion in relation to such an interest;

were references to what would, if the natural person were a holding company in relation to the subsidiary, be respectively:

 (d) an eligible entity in relation to the natural person and the subsidiary;

 (e) an eligible interest of such an entity; or

 (f) the eligible proportion in relation to such an interest.

 (2) For the purposes of applying section 159GZZZG or 159GZZZH in accordance with subsection (1):

 (a) any interest of an entity that is an eligible interest for the purposes of the application of that section apart from subsection (1) shall be taken not to be an eligible interest; and

 (b) any eligible interest of an eligible entity (including the natural person) held in the actual holding company referred to in subsection (1), or in any eligible entity interposed between the natural person and that holding company, shall be taken not to be an eligible interest.


Division 16KEffect of buybacks of shares

Subdivision AAApplication of Division to nonshare equity interests

159GZZZIA  Application of Division to nonshare dividends

 (1) This Division:

 (a) applies to a nonshare equity interest in the same way as it applies to a share; and

 (b) applies to an equity holder in the same way as it applies to a shareholder; and

 (c) applies to a nonshare dividend in the same way as it applies to a dividend.

 (2) Paragraph (1)(a) does not apply to subsection 159GZZZP(1).

Subdivision AInterpretation

159GZZZJ  Interpretation

  In this Division:

buyback has the meaning given by paragraph 159GZZZK(a).

offmarket purchase has the meaning given by paragraph 159GZZZK(d).

onmarket purchase has the meaning given by paragraph 159GZZZK(c).

purchase price has the meaning given by section 159GZZZM.

seller has the meaning given by paragraph 159GZZZK(b).

159GZZZK  Explanation of terms

  For the purposes of this Division, where a company buys a share in itself from a shareholder in the company:

 (a) the purchase is a buyback; and

 (b) the shareholder is the seller; and

 (c) if:

 (i) the share is listed for quotation in the official list of a stock exchange in Australia or elsewhere; and

 (ii) the buyback is made in the ordinary course of trading on that stock exchange;

  the buyback is an onmarket purchase; and

 (d) if the buyback is not covered by paragraph (c)—the buyback is an offmarket purchase.

159GZZZL  Special buybacks not made in ordinary course of trading on a stock exchange

  For the purposes of this Division, a buyback is not made in the ordinary course of trading on a stock exchange in Australia if, when reported to the stock exchange, the transaction under which the buyback is made, is, under the stock exchange’s rules, described as special.

159GZZZM  Purchase price in respect of buyback

  For the purposes of this Division, the purchase price in respect of a buyback of a share is:

 (a) if the seller has received or is entitled to receive an amount or amounts of money as a result of or in respect of the buyback—that amount or the sum of those amounts; or

 (b) if the seller has received or is entitled to receive property other than money as a result of or in respect of the buyback—the market value of that property at the time of the buyback; or

 (c) if the seller has received or is entitled to receive both an amount or amounts of money and property other than money as a result of or in respect of the buyback—the sum of that amount or those amounts and the market value of that property at the time of the buyback.

Subdivision BCompany buyingback shares

159GZZZN  Buyback and cancellation disregarded for certain purposes

  If a company buysback a share then the buyback, and any subsequent cancellation of the share, are disregarded for the purposes of:

 (a) determining for the purposes of this Act:

 (i) whether an amount is included in the assessable income of the company under a provision of this Act (other than a provision of Part 31 or 33 of the Income Tax Assessment Act 1997 (about CGT)); or

 (ii) whether an amount is allowable as a deduction to the company; or

 (b) determining whether the company makes a capital gain or capital loss.

Subdivision COffmarket purchases

159GZZZP  Part of offmarket purchase price is a dividend

 (1) For the purposes of this Act, but subject to subsection (1A), where a buyback of a share or nonshare equity interest by a company is an offmarket purchase, the difference between:

 (a) the purchase price; and

 (b) the part (if any) of the purchase price in respect of the buyback of the share or nonshare equity interest which is debited against amounts standing to the credit of:

 (i) the company’s share capital account if it is a share that is bought back; or

 (ii) the company’s share capital account or nonshare capital account if it is a nonshare equity interest that is bought back;

is taken to be a dividend paid by the company:

 (c) to the seller as a shareholder in the company; and

 (d) out of profits derived by the company; and

 (e) on the day the buyback occurs.

 (1A) If the dividend is included to any extent in the seller’s assessable income of any year of income, it is not taken into account to that extent under section 11820 of the Income Tax Assessment Act 1997.

 (2) The remainder of the purchase price is taken not to be a dividend for the purposes of this Act.

159GZZZQ  Consideration in respect of offmarket purchase

 (1) Subject to this section, if a buyback of a share is an offmarket purchase, then:

 (a) in determining, for the purposes of this Act:

 (i) whether an amount is included in the assessable income of the seller under a provision of this Act other than Parts 31 and 33 of the Income Tax Assessment Act 1997 (about CGT); or

 (ii) whether an amount is allowable as a deduction to the seller; or

 (b) whether the seller makes a capital gain or capital loss;

in respect of the buyback, the seller is taken to have received or to be entitled to receive, as consideration in respect of the sale of the share, an amount equal to the purchase price in respect of the buyback.

Deemed consideration increased to market value

 (2) If apart from this section:

 (a) the purchase price in respect of the buyback;

is less than:

 (b) the amount that would have been the market value of the share at the time of the buyback if the buyback did not occur and was never proposed to occur;

then, subject to subsection (3), in making the determinations mentioned in paragraphs (1)(a) and (b), the amount of consideration that the seller is taken to have received or to be entitled to receive in respect of the sale of the share is equal to the market value mentioned in paragraph (b) of this subsection.

Deemed consideration reduced where dividend assessable etc.

 (3) Subject to subsection (8), if there is a reduction amount in respect of the buyback (see subsection (4)), then, in making the determinations mentioned in paragraphs (1)(a) and (b), the amount of consideration that the seller is taken to have received or to be entitled to receive in respect of the sale of the share, after any application of subsection (2), is reduced by the reduction amount.

Reduction amount

 (4) The following steps are to be taken in working out whether there is a reduction amount in respect of the buyback:

 (a) first, work out whether the whole or part of the purchase price in respect of the buyback is taken to be a dividend by section 159GZZZP;

 (b) second, for any amount satisfying paragraph (a), work out whether the whole or part of it is either:

 (i) included in the seller’s assessable income of any year of income (disregarding section 128D of this Act and section 80215 of the Income Tax Assessment Act 1997); or

 (ii) an eligible noncapital amount (see subsection (5)).

The amount worked out is the reduction amount in respect of the buyback.

Eligible noncapital amount

 (5) An amount is an eligible noncapital amount if it is neither:

 (a) debited against a share capital account or a reserve to the extent that it consists of profits from the revaluation of assets of the company that have not been disposed of by the company; nor

 (b) attributable, either directly or indirectly, to amounts that were transferred from such an account or reserve of the company.

Debit for deemed dividend

 (7) For the purposes of subsection (5), an amount of the purchase price that is taken to be a dividend by section 159GZZZP is taken to have been debited against the account or reserves against which the purchase price was debited, and to the same extent.

Offsetable amount excluded from reduction where loss

 (8) If:

 (aa) the seller is a corporate tax entity; and

 (a) the amount of consideration that the seller is taken by subsection (1) or (2) to have received or to be entitled to receive in respect of the sale of the share is, apart from this subsection, reduced by a reduction amount under subsection (3); and

 (b) the dividend mentioned in paragraph (4)(a), so far as it does not exceed the reduction amount, consists to any extent of an offsetable amount (see subsection (9)); and

 (c) disregarding this subsection, as a result of the operation of this section:

 (i) for the purposes of Parts 31 and 33 of the Income Tax Assessment Act 1997 (about CGT), the seller incurs a capital loss or an increased capital loss (which loss or increase is the loss amount) in respect of the buyback; or

 (ii) a loss, or an increased loss, (which loss or increase is also the loss amount) in respect of the buyback is allowable as a deduction to the seller under a provision of a Part of this Act other than Part 31 or 33 of the Income Tax Assessment Act 1997; or

 (iii) the amount of a deduction allowable from the seller’s assessable income of any year of income in respect of the issue or acquisition of the share exceeds, or exceeds by a greater amount, (the excess or increased excess is also the loss amount) the amount included in the seller’s assessable income of any year of income in respect of the buyback of the share;

then the reduction in the amount of the consideration under subsection (3) is instead a reduction equal to:

 (d) the reduction amount;

less:

 (e) so much of the offsetable amount as does not exceed the loss amount.

Meaning of offsetable amount

 (9) For the purposes of subsection (8), if the seller is entitled to a tax offset under Division 207 of the Income Tax Assessment Act 1997 in the seller’s assessment for a year of income in respect of the dividend, the dividend consists of an offsetable amount worked out using the formula:

Subdivision DOnmarket purchases

159GZZZR  No part of onmarket purchase price is a dividend

  For the purposes of this Act, where a buyback by a company of a share is an onmarket purchase, no part of the purchase price in respect of the buyback of the share is taken to be a dividend.

159GZZZS  Consideration in respect of onmarket purchase

  Where a buyback is an onmarket purchase, then:

 (a) in determining, for the purposes of this Act:

 (i) whether an amount is included in the assessable income of the seller under a provision of this Act other than Parts 31 and 33 of the Income Tax Assessment Act 1997 (about CGT); or

 (ii) whether an amount is allowable as a deduction to the seller; or

 (b) whether the seller makes a capital gain or capital loss;

in respect of the buyback, the seller is taken to have received or to be entitled to receive, as consideration in respect of the sale of the share, the purchase price in respect of the buyback of the share.


Division 16LTaxexempt infrastructure borrowings

Note: The issue of certificates that give rise to the tax concessions in this Division has been terminated for new cases by the Taxation Laws Amendment (Infrastructure Borrowings) Act 1997.

159GZZZZD  Interpretation

  In this Division:

certificate has the same meaning as in Chapter 3 of the DAA Act.

DAA means the Development Allowance Authority appointed under Chapter 4 of the DAA Act.

DAA Act means the Development Allowance Authority Act 1992.

direct infrastructure borrowing has the same meaning as in Chapter 3 of the DAA Act.

exemption period, in relation to an infrastructure borrowing, means:

 (a) in the case of a direct infrastructure borrowing or an indirect infrastructure borrowing—the period of 15 years beginning at the time of the borrowing; or

 (b) in the case of a refinancing infrastructure borrowing—so much of the period that under paragraph (a) is the exemption period in respect of the direct infrastructure borrowing, or the indirect infrastructure borrowing, to which the refinancing infrastructure borrowing relates as remains at the time of the refinancing infrastructure borrowing.

IB amount, in relation to a taxpayer, means:

 (a) a payment of interest, or in the nature of interest, made or liable to be made to the taxpayer under an infrastructure borrowing; or

 (b) an amount included in the assessable income of the taxpayer under section 159GQ in relation to an infrastructure borrowing.

indirect infrastructure borrowing has the same meaning as in Chapter 3 of the DAA Act.

infrastructure borrowing has the same meaning as in Chapter 3 of the DAA Act.

infrastructure period, in relation to a certificate that is cancelled, means the period from the time of the borrowing to which the certificate applied until the conditions under section 93R of the DAA Act would, if the certificate had not been cancelled, have ceased to apply to the holder.

refinancing infrastructure borrowing has the same meaning as in Chapter 3 of the DAA Act.

tax benefit amount, in relation to a certificate that is cancelled, in relation to a year of income (being the year of income in which the cancellation occurs or any earlier or later year of income), means:

 (a) a payment of interest, or in the nature of interest, that, because of paragraph 159GZZZZE(1)(a), is not allowable as a deduction from the assessable income of the year of income of a taxpayer in respect of the borrowing to which the certificate applies; or

 (b) an amount that, because of paragraph 159GZZZZE(2)(d), is not allowable as a deduction under section 159GT from the assessable income of the year of income of a taxpayer in respect of the borrowing to which the certificate applies.

159GZZZZE  Infrastructure borrowings to be nonassessable and nondeductible

Basic nonassessability/nondeductibility provision

 (1A) This section applies to an infrastructure borrowing if a certificate is issued in relation to the borrowing, regardless of whether the certificate is later cancelled.

 (1) Subject to section 159GG, no amount is included in, or allowable as a deduction from, the assessable income of a taxpayer of a year of income in respect of:

 (a) payments of principal or interest, or in the nature of interest, made or liable to be made by or to the taxpayer under the infrastructure borrowing during the exemption period in relation to the borrowing; or

 (b) amounts received or receivable, or paid or payable, by the taxpayer by way of consideration for the acquisition or disposal, during the exemption period in relation to the infrastructure borrowing, of:

 (i) rights or liabilities in respect of the borrowing; or

 (ii) any bond, debenture, discounted security, or other document evidencing indebtedness, in respect of the borrowing; or

 (c) any profit or loss of the taxpayer in respect of a disposal mentioned in paragraph (b), or in respect of the repayment of the infrastructure borrowing by or to the taxpayer during the exemption period in relation to the borrowing; or

 (d) the writing off or extinguishing of the whole or part of any debt that consists of a payment or amount to which this subsection applies that is liable to be made to, or is receivable by, the taxpayer.

Special provision relating to Division 16E

 (2) Subject to section 159GZZZZG, no amount is included in, or allowable as a deduction from, the assessable income of a taxpayer of a year of income:

 (a) under section 159GQ in relation to the exemption period in respect of the infrastructure borrowing; or

 (c) under section 159GS in relation to any transfer, during the exemption period in respect of the infrastructure borrowing, of:

 (i) rights or liabilities in respect of the borrowing; or

 (ii) any bond, debenture, discounted security, or other document evidencing indebtedness, in respect of the borrowing; or

 (d) under section 159GT in respect of the exemption period in relation to the infrastructure borrowing.

Deemed reacquisition after exemption period

 (3) For the purposes of this Act:

 (a) if a taxpayer holds a bond, debenture, discounted security, or other document evidencing indebtedness, in respect of the infrastructure borrowing—that bond, debenture, discounted security or other document; or

 (b) in any other case—all rights of a taxpayer under the infrastructure borrowing;

is or are taken to have been disposed of by the taxpayer immediately before the end of the exemption period and to have been reacquired by the taxpayer immediately after the end of the period for their market value at that time.

159GZZZZF  Tax exemption to be disregarded for certain purposes

  The exclusion under section 159GZZZZE of amounts from assessable income is to be disregarded for the purpose of applying any provision of this Act to determine allowable deductions in respect of infrastructure borrowings (other than deductions to which section 159GZZZZE applies).

159GZZZZG  Rebate election

Basic case

 (1) If:

 (a) if subsections 159GZZZZE(1) and (2) did not apply to IB amounts, the assessable income of a year of income of a taxpayer who is:

 (i) a company or a natural person (other than a company or natural person in the capacity of a trustee); or

 (ii) a corporate unit trust within the meaning of Division 6B in relation to the year of income; or

 (iii) a public trading trust within the meaning of Division 6C in relation to the year of income; or

 (iv) a complying superannuation fund, a noncomplying superannuation fund, a complying approved deposit fund, a noncomplying approved deposit fund or a pooled superannuation trust in relation to the year of income;

  would include one or more IB amounts; and

 (b) the taxpayer’s return of income of the year of income includes all of the IB amounts;

then:

 (c) all of the IB amounts are included in the taxpayer’s assessable income of the year of income; and

 (d) the taxpayer is entitled to a rebate in the taxpayer’s assessment for that year of an amount equal to 30% of the IB amounts.

Beneficiary assessment

 (2) If:

 (a) apart from this subsection, a share of the net income of a trust estate of a year of income is included in a taxpayer’s assessable income under section 97; and

 (b) if subsections 159GZZZZE(1) and (2) did not apply to IB amounts included in the assessable income of the trust estate, or of any other trust estate or partnership, that share of the net income would be increased by an amount (the IB attributable amount); and

 (c) the taxpayer’s return of income of the year of income is prepared on the basis that all of the IB amounts are included in the assessable income of the trust estate, or of the other trust estate or partnership;

then:

 (d) for the purposes only of working out the share of the net income to be included in the taxpayer’s assessable income, the assessable income of the trust estate, or of the other trust estate or partnership, includes all of the IB amounts; and

 (e) the taxpayer is entitled to a rebate in the taxpayer’s assessment for the year of income of an amount equal to 30% of the IB attributable amount.

Trustee assessment

 (3) If:

 (a) apart from this subsection, the trustee of a trust estate is assessed and liable to pay tax:

 (i) in respect of a share of the net income of the trust estate of a year of income under section 98; or

 (ii) in respect of the whole or part of the net income of the trust estate under section 99 or 99A; and

 (b) if subsections 159GZZZZE(1) and (2) did not apply to IB amounts included in the assessable income of the trust estate, or of any other trust estate or partnership, of the year of income, the amount of the share, or of the whole or the part, of the net income would be increased by an amount (the IB attributable amount); and

 (c) the trustee’s return of income in respect of the share, or the whole or the part of the net income, of the year of income is prepared on the basis that all of the IB amounts are included in the assessable income of the trust estate, or of the other trust estate or partnership;

then:

 (d) for the purposes only of working out the amount of:

 (i) the share, or of the whole or the part, of the net income; and

 (ii) the individual interest of a beneficiary in the net income of the trust estate that is to be included in the beneficiary’s assessable income under section 100, where the share of the net income to which subparagraph (a)(i) of this subsection applies is that of the beneficiary;

  the assessable income of the trust estate, or of the other trust estate or partnership, includes all of the IB amounts; and

 (e) the trustee is entitled to a rebate in the trustee’s assessment in respect of the share, or of the whole or the part, of the net income of the year of income to an amount equal to 30% of the IB attributable amount.

Partner assessment

 (4) If:

 (a) apart from this subsection, a share of the net income of a partnership of a year of income is included in a taxpayer’s assessable income under section 92; and

 (b) if subsections 159GZZZZE(1) and (2) did not apply to IB amounts included in the assessable income of the partnership, or of any other partnership or trust estate, that share of the net income would be increased by an amount (the IB attributable amount); and

 (c) the taxpayer’s return of income of the year of income is prepared on the basis that all of the IB amounts are included in the assessable income of the partnership, or of the other partnership or trust estate;

then:

 (d) for the purposes only of working out the share of the net income included in the taxpayer’s assessable income, the assessable income of the partnership, or of the other partnership or trust estate, includes all of the IB amounts; and

 (e) the taxpayer is entitled to a rebate in the taxpayer’s assessment for the year of income of an amount equal to 30% of the IB attributable amount.

 (5) The inclusion of an IB amount in the assessable income of a person under this section does not affect the denial of allowability of a deduction to another person in respect of the same amount under subsection 159GZZZZE(1) or (2).

159GZZZZH  Tax payable where infrastructure borrowing certificate cancelled

Tax payable

 (1) If:

 (a) the DAA cancels a certificate in relation to an infrastructure borrowing; and

 (b) for any year of income (whether the one in which the cancellation takes place or an earlier or later one), there is a tax benefit amount in relation to the certificate;

the holder of the certificate at the time of the cancellation is liable to pay tax on an amount (an infrastructure certificate cancellation amount) worked out using the formula:

where

Factor means:

 (a) if the year of income to which the tax benefit amount relates is:

 (i) the year of income in which the act or omission that was the ground, or the first act or omission that was a ground, relied on by the DAA for cancelling the certificate occurred; or

 (ii) an earlier year of income;

  the fraction worked out using the formula:

; or

 (b) in any other case—the number 1.

Assessment of amount

 (2) The Commissioner may make an assessment of the tax payable by a taxpayer under this section. In making or amending the assessment, and in dealing with any objection, appeal or review in relation to the assessment or amended assessment, the Commissioner may rely in whole or in part on advice given by the DAA under section 93ZF of the DAA Act.

Incorporation in other notices

 (3) This Act does not prevent notice of the assessment being incorporated in a notice of any other assessment made in respect of the taxpayer under this Act.

References in other provisions

 (4) Unless the contrary intention appears, in sections 172, 174, 254 and 255 and former sections 204, 215 and 216, but not in any other section of this Act, income tax or tax includes tax payable under this section.

 (5) Division 5 of the Income Tax Assessment Act 1997 (How to work out when to pay your income tax) applies to tax payable under this section in the same way as that Division applies to income tax.


Division 17Rebates

Subdivision AConcessional rebates

159H  Application

  This Subdivision applies in relation to an assessment in respect of the income of a taxpayer if and only if:

 (a) the taxpayer is a resident and is not a company, and the assessment is not in respect of income derived by him or her in a representative capacity as an agent or trustee; or

 (b) both of the following requirements are satisfied:

 (i) the taxpayer is a trustee who is liable to be assessed under section 98 in respect of a share of the net income of a trust estate in respect of a beneficiary;

 (ii) the beneficiary is a resident and is not a company.

159HA  Indexation for the purposes of sections 159J, 159L and 159P

 (1) Sections 159J, 159L and 159P apply in relation to an indexing year of income as if each indexable amount were replaced by the amount calculated using the formula:

Previous indexable amount Indexation factor

where:

Previous indexable amount  is the indexable amount concerned for the previous year of income.

Indexation factor is the indexation factor for the indexing year of income.

 (2) Where, apart from this subsection, an amount calculated under subsection (1) would be an amount of dollars and cents:

 (a) if the number of cents is less than 50—the amount shall be rounded down to the nearest whole dollar; and

 (b) in any other case—the amount shall be rounded up to the nearest whole dollar.

 (3) The indexation factor for an indexing year of income is the number (calculated to 3 decimal places) ascertained by dividing the sum of the index numbers for the quarters of the 12 month period ending on 31 March immediately before the indexing year of income by the sum of the index numbers for the quarters of the preceding 12 month period ending on 31 March.

 (4) If the factor ascertained under subsection (3) in relation to an indexing year of income would, if it were calculated to 4 decimal places, end with a number greater than 4, the factor ascertained under that subsection in relation to that indexing year of income shall be taken to be the factor calculated to 3 decimal places and increased by 0.001.

 (5) Subject to subsection (6), if at any time, whether before or after the commencement of this section, the Australian Statistician has published or publishes an index number in respect of a quarter in substitution for an index number previously published by the Australian Statistician in respect of that quarter, the publication of the later index number shall be disregarded for the purposes of this section.

 (6) If at any time, whether before or after the commencement of this section, the Australian Statistician has changed or changes the reference base for the Consumer Price Index, then, for the purposes of the application of this section after the change took place or takes place, regard shall be had only to the index numbers published in terms of the new reference base.

 (6A) If the indexation factor for an indexing year of income is less than 1.000, sections 159J and 159L apply in relation to the indexing year of income as if each indexable amount were the same as the previous indexable amount (as defined in subsection (1)). This subsection has effect despite subsection (1).

 (7) In this section:

indexable amount means:

 (a) an amount specified in subsection 159J(1B) or (2) (other than the amounts specified in column 3 of the table in subsection 159J(2) in respect of a dependant included in class 3 or 4); or

 (b) the amounts specified in subsection 159L(2); or

 (c) the amount specified in:

 (i) paragraph 23AB(7A)(a); or

 (ii) paragraph (d) of the definition of relevant rebate amount in subsection 79A(4); or

 (iii) paragraph (d) of the definition of concessional rebate amount in subsection 79B(6); or

 (d) an amount specified in paragraph 159P(3A)(b);

or, if any such amount has been altered under this section in relation to the 200809 year of income or a later year of income, the altered amount.

indexation factor means the indexation factor ascertained under subsection (3).

indexing year of income means the year of income commencing on 1 July 2008 or a later year of income.

index number, in relation to a quarter, means the All Groups Consumer Price Index number, being the weighted average of the 8 capital cities, published by the Australian Statistician in respect of that quarter.

159J  Rebates for dependants

 (1) Where, during the year of income, a taxpayer contributes to the maintenance of a person (in this section referred to as a dependant) specified in column 2 of the table set out in subsection (2) and that person is a resident, the taxpayer is entitled, in his or her assessment in respect of income of that year of income, to a rebate of tax ascertained in accordance with this section.

 (1A) A taxpayer is not entitled in his or her assessment in respect of income of a year of income after the year of income that ends on 30 June 1976 to a rebate under this section in respect of a person by reason that the person is included in class 3 or class 4 in the table set out in subsection (2).

 (1AB) A taxpayer is not entitled, in his or her assessment in respect of a year of income, to a rebate under this section in respect of a dependant included in class 1, 2, 5 or 6 in the table in subsection (2) if:

 (a) for a dependant included in class 1 or who is an invalid spouse or carer spouse for the purposes of class 5 in the table in subsection 159J(2)—the taxpayer’s adjusted taxable income for the year is more than the income limit for family tax benefit (Part B) for the year; or

 (b) for a dependant included in class 2 or 6, or an invalid relative for the purposes of class 5—subsection (1AC) applies to the taxpayer for the year.

 (1AC) This subsection applies to a taxpayer for a year of income if the sum of:

 (a) the taxpayer’s adjusted taxable income for the year; and

 (b) if the taxpayer has a spouse during the year—the spouse’s adjusted taxable income for the year; and

 (c) if the taxpayer has a spouse during only part of the year—this amount:

is more than the income limit for family tax benefit (Part B) for the year.

Note: If the taxpayer has a different spouse during different parts of the year, the adjusted taxable income of each spouse will be included under paragraph (c).

 (1B) Where, but for subsection (1A), a taxpayer would be entitled in his or her assessment in respect of income of a year of income to a rebate under this section in respect of a dependant included in class 3 or 4 in the table in subsection (2), the entitlement of the taxpayer to a rebate under this section in that assessment in respect of any dependant included in class 2 of that table shall be calculated as if the reference in that table to $1,711 were a reference to $2,051.

 (1C) A taxpayer is not entitled, in his or her assessment in respect of a year of income, to a rebate under this section in respect of a dependant included in class 1 in the table in subsection (2) if the dependant was born on or after 1 July 1952.

 (1D) A taxpayer is not entitled, in his or her assessment in respect of a year of income, to a rebate under this section in respect of a dependant who is an invalid spouse or a carer spouse for the purpose of class 5 in the table in subsection (2) if the taxpayer is also entitled to a rebate in respect of the dependant being included in class 1 in the table.

 (1E) If a taxpayer is entitled, in his or her assessment in respect of a year of income, to a rebate under this section in respect of a dependant who is an invalid spouse included in class 5 in the table in subsection (2), the taxpayer is not also entitled to a rebate in respect of that dependant being included as a carer spouse in class 5 in the table.

 (2) Subject to this section, the amount of the rebate allowable in the assessment of the taxpayer in respect of a dependant under this section is the relevant amount specified in column 3 of the following table:

Column 1
Class

Column 2
Dependant

Column 3
Amounts of Rebate

1

Spouse of the taxpayer

$2,100

2

Childhousekeeper

$1,711

3

Child less than 21 years of age (not being a student)

In respect of 1 such child—$376

 

 

In respect of each other such child—$282

4

Student

$376

5

Invalid relative, invalid spouse or carer spouse

In respect of an invalid relative—$770

In respect of an invalid spouse—$2,100

In respect of a carer spouse—$2,100

6

Parent of the taxpayer or of the taxpayer’s spouse

$1,540

 (3) Where:

 (a) the taxpayer contributes to the maintenance of a dependant during part only of the year of income; or

 (aa) a dependant is a resident during part only of the year of income; or

 (b) during the whole or part of the year of income, 2 or more persons contribute to the maintenance of a person who is a dependant in relation to 1 or more of the persons so contributing; or

 (c) a dependant, being the spouse of the taxpayer, is the spouse of the taxpayer during part only of the year of income; or

 (d) a dependant, being a childhousekeeper, is wholly engaged in keeping house for the taxpayer during part only of the year of income; or

 (e) a dependant, being a child included in class 3 in the table in subsection (2), a student or an invalid relative, is such a dependant during part only of the year of income; or

 (f) a dependant, being a spouse of the taxpayer, is an invalid spouse or a carer spouse during part only of the income year;

the rebate allowable to the taxpayer in respect of that dependant shall be such part of the relevant amount specified in column 3 of that table as, in the opinion of the Commissioner, is reasonable in the circumstances.

 (3A) In the application of the definition of resident in subsection 6(1) for the purposes of this section, a dependant included in class 1, 2, 3 or 4, and a child, invalid spouse or carer spouse of the taxpayer being a dependant included in class 5, in the table in subsection (2) shall be deemed to have a domicile in Australia at all times when the taxpayer has a domicile in Australia.

 (4) The amount of the rebate otherwise allowable under this section in respect of a dependant shall be reduced by $1 for every $4 by which the dependant’s adjusted taxable income for the year of income exceeds $282.

 (5) Where, during the whole or a part of the year of income, the taxpayer and a person of a kind specified in column 2 of the table in subsection (2) resided together and that person has an adjusted taxable income for that year, then, for the purposes of this section, the taxpayer shall be regarded, unless the contrary is established to the satisfaction of the Commissioner, as having contributed to the maintenance of that person during the whole or that part of the year of income, as the case may be.

 (5A) Subject to subsection (5B), where, but for this subsection, a taxpayer would, by reason that he or she contributed to the maintenance of 2 or more dependants included in class 1 in the table in subsection (2) during the whole or a part of the year of income, be entitled in his or her assessment in respect of income of the year of income to more than one rebate under this section, the taxpayer shall be regarded as having contributed to the maintenance of only one of those dependants during the whole or that part of the year of income, as the case may be, being the dependant in respect of whom the lesser, or least, of the rebates would, but for this subsection, be allowable to the taxpayer under this section in respect of those dependants.

 (5B) Where subsection (5A) applies but the Commissioner is of the opinion that, because of special circumstances, it would be reasonable to regard the taxpayer as having contributed during the whole or a part of the year of income to the maintenance of a dependant included in class 1 in the table in subsection (2), other than the dependant in respect of whom a rebate is allowable under this section by virtue of the operation of subsection (5A), the taxpayer shall be regarded as having contributed to the maintenance of that other dependant only and the rebate allowable to the taxpayer under this section in respect of that other dependant shall be such amount, not exceeding the relevant amount specified in column 3 of the table in subsection (2), as is, in the opinion of the Commissioner, reasonable in the circumstances.

 (5C) Where:

 (a) during the whole or a part of the year of income, a taxpayer contributed to the maintenance of 2 or more dependants included in class 1 in the table in subsection (2); and

 (b) by virtue of the operation of subsection (4), a rebate is not allowable to the taxpayer under this section in respect of one of those dependants;

the taxpayer shall be regarded as not having contributed to the maintenance of any of those dependants during the whole or that part of the year of income, unless the Commissioner is of the opinion that, because of special circumstances, it would be unreasonable to do so, in which case the rebate (if any) allowable under this section in the assessment of the taxpayer in respect of income of the year of income in respect of a dependant included in class 1 in that table shall be such amount, not exceeding the relevant amount specified in column 3 of that table, as is, in the opinion of the Commissioner, reasonable in the circumstances.

 (5CA) For the purposes of subsections (5A), (5B) and (5C), treat a dependant that is an invalid spouse or a carer spouse for the purpose of class 5 in the table in subsection (2) as a dependant included in class 1 in the table.

 (5D) Where, by reason that, during the whole or a part of the year of income, a taxpayer contributes to the maintenance of a dependant included in class 1 in the table in subsection (2) or a dependant that is an invalid spouse or a carer spouse for the purpose of class 5 in the table in subsection (2), the taxpayer is entitled, or would, but for subsection (1C) or (4), be entitled, in his or her assessment in respect of income of the year of income, to a rebate under this section, a child of the taxpayer shall be deemed not to have been engaged in keeping house for the taxpayer during the whole or that part of the year of income, as the case may be.

 (6) In this section:

adjusted taxable income has the same meaning as in the A New Tax System (Family Assistance) Act 1999, except that, for the purposes of this section, clauses 3 and 3A of Schedule 3 to that Act are taken not to have been enacted.

carer spouse means a person who is a spouse of the taxpayer, being a person:

 (a) who is wholly engaged in providing care to an invalid relative; or

 (b) to whom a carer allowance or carer payment is being paid pursuant to the Social Security Act 1991 or to whom a carer service pension is being paid pursuant to the Veterans’ Entitlements Act 1986.

childhousekeeper means the child of a taxpayer who is wholly engaged in keeping house for the taxpayer.

income limit for family tax benefit (Part B) means the amount specified in subclause 28B(1) of Schedule 1 to the A New Tax System (Family Assistance) Act 1999, as indexed under Part 2 of Schedule 4 to that Act.

invalid relative means a person who is not less than 16 years of age and is a child, brother or sister of the taxpayer or of the taxpayer’s spouse, being a person:

 (a) to whom a disability support pension or a special needs disability support pension is being paid under the Social Security Act 1991; or

 (c) in respect of whom the taxpayer obtains a certificate issued by a medical officer of the Health Department, or by a medical practitioner appointed by the Families Secretary for the purpose of examining claimants for disability support pensions under that Act, certifying that the person has a continuing inability to work within the meaning of Part 2.3 of that Act.

Note: Section 960255 of the Income Tax Assessment Act 1997 may be relevant to determining relationships for the purposes of the definition of invalid relative.

invalid spouse means a person that is a spouse of the taxpayer, being a person who satisfies the requirements in paragraph (a) or (c) of the definition of invalid relative.

student means a person who is less than 25 years of age and is receiving fulltime education at a school, college or university.

159JA  Rebates for dependants—reduction because of certain other benefits

Families without shared care percentages

 (1) A taxpayer is not entitled, in his or her assessment in respect of a year of income, to a rebate under section 159J in respect of a dependant for a part of the year, if:

 (a) the dependant is included in class 1 or 2 in the table in subsection 159J(2) or is an invalid spouse or a carer spouse for the purpose of class 5 in the table in subsection 159J(2); and

 (b) during that part of the year:

 (i) the taxpayer is a member of a family tax benefit (Part B) family without shared care; or

 (ii) parental leave pay is payable under the Paid Parental Leave Act 2010 to the taxpayer, or to the taxpayer’s spouse while being the taxpayer’s partner (within the meaning of that Act).

Note: That part of the year may be the whole year.

 (2) Subject to subsection (3), the rebate allowable to the taxpayer under section 159J in respect of the dependant for the part (if any) of the year not covered by paragraph (1)(b) of this section is such part of the relevant rebate amount specified in column 3 of the table in subsection 159J(2) as, in the Commissioner’s opinion, is reasonable in the circumstances.

Families with shared care percentages

 (3) The rebate allowable to a taxpayer under section 159J in respect of a dependant for a part (the shared care period) of a year of income is to be worked out using the formula in subsection (4) of this section, if:

 (a) disregarding this subsection, the taxpayer would be entitled, in his or her assessment in respect of the year, to a rebate under section 159J in respect of the dependant; and

 (b) the dependant is included in class 1 or 2 in the table in subsection 159J(2) or is an invalid spouse or a carer spouse for the purpose of class 5 in the table in subsection 159J(2); and

 (c) during the shared care period:

 (i) the taxpayer, or the taxpayer’s spouse while being the taxpayer’s partner (within the meaning of the A New Tax System (Family Assistance) Act 1999), was eligible for family tax benefit at the Part B rate within the meaning of that Act; and

 (ii) clause 31 of Schedule 1 to that Act applied in respect of that Part B rate because the taxpayer, or the taxpayer’s spouse, had a shared care percentage for an FTB child (within the meaning of that Act).

Note: The shared care period may be the whole year.

 (4) The formula is:

where:

applicable rebate amount is the amount of rebate that would have been allowable under section 159J in respect of the shared care period but for subsection (3) of this section.

nonshared care rate is the rate that would be the standard rate in respect of the taxpayer or the taxpayer’s spouse under clause 30 of Schedule 1 to the A New Tax System (Family Assistance) Act 1999 if:

 (a) clause 31 of that Schedule did not apply; and

 (b) the FTB child in respect of whom the standard rate was determined under clause 31 was the only FTB child of the taxpayer or the taxpayer’s spouse, as the case requires.

shared care rate is the standard rate in respect of the taxpayer or the taxpayer’s spouse worked out under clause 31 of Schedule 1 to the A New Tax System (Family Assistance) Act 1999.

159K  Sole parent rebate

 (1) Where, during the whole of the year of income, a taxpayer has the sole care of a dependant or dependants included in class 3 or class 4 in the table in subsection 159J(2), being a dependant or dependants in respect of whom he would be entitled to a rebate of tax under section 159J in his assessment in respect of income of the year of income but for subsection 159J(1A), he is entitled, subject to subsection (3), to a rebate of tax, in his assessment in respect of income of that year of income, of:

 (a) if he is not entitled, in respect of the year of income, to a rebate of tax under section 159J in respect of a spouse or childhousekeeper or under section 159L in respect of a housekeeper—an amount of $1,607; and

 (b) if he is entitled to a rebate of tax under section 159J in respect of a childhousekeeper, or under section 159L in respect of a housekeeper, in respect of a period that is part of the year of income, or the taxpayer contributed during a period that is part of the year of income, to the maintenance of his spouse—an amount of $1,607 less an amount that bears to $1,607 the same proportion as the number of days in that period (or, if there is more than one such period, in those periods) bears to 365.

 (1A) A taxpayer is not entitled to a rebate under this section in his or her assessment in respect of the 20002001 year of income or a later year of income.

 (2) Where, during part only of the year of income, a taxpayer has the sole care of a dependant or dependants included in class 3 or class 4 in the table in subsection 159J(2), being a dependant or dependants in respect of whom he would be entitled to a rebate of tax under section 159J in his assessment in respect of income of the year of income but for subsection 159J(1A), and the taxpayer would, if he had had the sole care of that dependant or those dependants during the whole of the year of income, have been entitled to a rebate under subsection (1), the taxpayer is entitled, subject to subsection (3), to a rebate of tax, in his assessment in respect of income of the year of income, of an amount not exceeding $1,607 that, in the opinion of the Commissioner, is reasonable in the circumstances.

 (3) Where the taxpayer is the spouse of another person during the whole or part of the year of income:

 (a) the taxpayer is not entitled to a rebate under this section in respect of that year of income unless the Commissioner is of the opinion that, because of special circumstances, it is just to allow a rebate; and

 (b) the rebate (if any) shall be such amount not exceeding $1,607 as, in the opinion of the Commissioner, is reasonable in the circumstances.

159L  Rebates for housekeepers

 (1) Where, during the year of income, a person (in this section referred to as a housekeeper) is wholly engaged in keeping house in Australia for a taxpayer and in caring for:

 (a) a child of the taxpayer less than 21 years of age; or

 (b) a dependant included in class 3, or a dependant less than 21 years of age included in class 4, in the table in subsection 159J(2) in respect of whom the taxpayer would be entitled to a rebate under section 159J in his or her assessment in respect of income of the year of income but for subsection 159J(1A); or

 (ba) a dependant who is an invalid relative for the purpose of class 5 in the table in subsection 159J(2) in respect of whom the taxpayer is entitled to a rebate under section 159J in his or her assessment in respect of income of the year of income; or

 (c) an invalid spouse (within the meaning of subsection 159J(6));

the taxpayer is entitled, in his or her assessment in respect of income of that year of income, to a rebate of tax ascertained in accordance with this section.

 (2) Subject to this section, the amount of the rebate allowable under this section in the assessment of the taxpayer in respect of income of a year of income shall be:

 (a) in the case of a taxpayer who would, but for subsection 159J(1A), be entitled to a rebate in that assessment under section 159J in respect of a dependant included in class 3 or class 4 in the table in subsection 159J(2)—$2,051; and

 (b) in any other case—$1,711.

 (3) Where, by reason of the fact that, during a part of the year of income, the taxpayer contributes to the maintenance of a dependant included in class 1 or class 2 in the table in subsection 159J(2) or a carer spouse for the purpose of class 5 in the table in subsection 159J(2) not being a dependant specified in paragraph (1)(c) of this section, the taxpayer is entitled to a rebate of tax under section 159J in his or her assessment in respect of income of the year of income, a housekeeper shall be deemed not to have been wholly engaged in keeping house for the taxpayer during that part of the year of income.

 (3B) A taxpayer is not entitled, in his or her assessment in respect of a year of income, to a rebate under this section if subsection 159J(1AC) applies to the taxpayer for the year.

 (4) If a taxpayer has an invalid spouse (within the meaning of subsection 159J(6)) and the housekeeper is not, during the year of income, engaged in caring for the invalid spouse of the taxpayer:

 (a) the taxpayer is not entitled to a rebate under this section in his or her assessment in respect of income of the year of income unless the Commissioner is of the opinion that, because of special circumstances, it is just to allow a rebate; and

 (b) the rebate (if any) shall be of such amount, not exceeding the amount specified in subsection (2) in relation to the taxpayer as, in the opinion of the Commissioner, is reasonable in the circumstances.

 (5) Where a housekeeper is wholly engaged in keeping house for the taxpayer and in caring for the child, dependant or spouse during part only of the year of income, the rebate allowable in respect of that housekeeper under this section in the assessment of the taxpayer in respect of income of that year of income shall be such part of the amount specified in subsection (2) in relation to the taxpayer as, in the opinion of the Commissioner, is reasonable in the circumstances.

159LA  Rebates for housekeepers—reduction because of certain other benefits

Families without shared care percentages

 (1) A taxpayer is not entitled, in his or her assessment in respect of a year of income, to a rebate under section 159L in respect of a person (the housekeeper) for a part of the year, if, during that part of the year:

 (a) the taxpayer does not contribute to the maintenance of a dependant specified in paragraph 159L(1)(c); and

 (b) either or both of the following subparagraphs apply:

 (i) the taxpayer is a member of a family tax benefit (Part B) family without shared care;

 (ii) parental leave pay is payable under the Paid Parental Leave Act 2010 to the taxpayer, or to the taxpayer’s spouse while being the taxpayer’s partner (within the meaning of that Act).

Note: That part of the year may be the whole year.

 (2) Subject to subsection (3), the rebate allowable to the taxpayer under section 159L in respect of the housekeeper for the part (if any) of the year not covered by subsection (1) of this section is such part of the rebate specified in subsection 159L(2) in relation to the taxpayer as, in the Commissioner’s opinion, is reasonable in the circumstances.

Families with shared care percentages

 (3) The rebate allowable to a taxpayer under section 159L in respect of a person (the housekeeper) for a part (the shared care period) of a year of income is to be worked out using the formula in subsection (4) of this section, if:

 (a) disregarding this subsection, the taxpayer would be entitled, in his or her assessment in respect of the year, to a rebate under section 159L in respect of the housekeeper; and

 (b) during the shared care period:

 (i) the taxpayer, or the taxpayer’s spouse while being the taxpayer’s partner as defined in the A New Tax System (Family Assistance) Act 1999, was eligible for family tax benefit at the Part B rate within the meaning of that Act; and

 (ii) clause 31 of Schedule 1 to that Act applied in respect of that Part B rate because the taxpayer, or the taxpayer’s spouse, had a shared care percentage for an FTB child (within the meaning of that Act); and

 (iii) the taxpayer did not contribute to the maintenance of a dependant specified in paragraph 159L(1)(c) of this Act.

Note: The shared care period may be the whole year.

 (4) The formula is:

where:

applicable rebate amount is the amount of rebate that would have been allowable under section 159L in respect of the shared care period but for subsection (3) of this section.

nonshared care rate is the rate that would be the standard rate in respect of the taxpayer or the taxpayer’s spouse under clause 30 of Schedule 1 to the A New Tax System (Family Assistance) Act 1999 if:

 (a) clause 31 of that Schedule did not apply; and

 (b) the FTB child in respect of whom the standard rate was determined under clause 31 was the only FTB child of the taxpayer or the taxpayer’s spouse, as the case requires.

shared care rate is the standard rate in respect of the taxpayer or the taxpayer’s spouse worked out under clause 31 of Schedule 1 to the A New Tax System (Family Assistance) Act 1999.

159M  Double concessional rebates

  Where, but for this section, a taxpayer would be entitled, under the provisions of sections 159J and 159L, to more than one rebate of tax in his or her assessment in respect of income of a year of income in respect of the same person, the rebate or rebates shall be of such amount as is or such amounts as are, in the opinion of the Commissioner, reasonable in the circumstances.

159N  Rebate for certain lowincome taxpayers

 (1) If a taxpayer’s taxable income of a year of income is less than $66,667, the taxpayer is entitled to a rebate of tax in the taxpayer’s assessment for the year of income.

 (2) The amount of the rebate is $445, reduced by 1.5 cents for every $1 of the amount (if any) by which the taxpayer’s taxable income of the year of income exceeds $37,000.

No rebate in respect of income of certain children

 (3) Subsections (4) and (5) apply if the taxpayer is a prescribed person in relation to the year of income for the purpose of Division 6AA of Part III.

 (4) Do not apply the rebate against the part (if any) of the taxpayer’s basic income tax liability that is attributable to the taxpayer’s eligible taxable income for the year of income.

 (5) If the taxpayer is entitled to the tax offset mentioned in item 15 of the table in subsection 6310(1) of the Income Tax Assessment Act 1997 (tax offset in respect of certain pensions) for the year of income, treat that tax offset as being applied, to the extent possible, against the part of the taxpayer’s basic income tax liability mentioned in subsection (4) of this section.

Rebate for a trustee assessed under section 98

 (6) A trustee who is liable to be assessed under section 98 in respect of a share of the net income of a trust estate in respect of a beneficiary is not entitled under this section to a rebate of tax in their assessment for the year of income to the extent Division 6AA applies to that share.

159P  Rebate for medical expenses

 (1) An amount paid by the taxpayer in the year of income as medical expenses in respect of himself or herself, or in respect of a dependant who is a resident, less any amount paid to the taxpayer or any other person, and any amount which the taxpayer or any other person is entitled to be paid, in respect of those medical expenses by a government or public authority or by a society, association or fund (whether incorporated or not) shall, for the purposes of this section, be treated as a rebatable amount in respect of that year of income.

 (3) Where an amount is paid in the year of income by the trustee of a trust estate out of income of the trust estate as medical expenses in respect of a beneficiary who is a resident, that amount, less the sum of any amounts that have been paid to the trustee or any other person or that the trustee or any other person is entitled to be paid, in respect of those medical expenses by a government or public authority, or by a society, association or fund (whether incorporated or not) shall, for the purposes of this section, be treated as a rebatable amount:

 (a) where the trustee is liable to be assessed under section 98 in respect of income of the year of income to which that beneficiary is presently entitled—in the assessment of the trustee in respect of that income; and

 (b) where that beneficiary is liable to be assessed in respect of any income of the year of income—in the assessment of that beneficiary in respect of that income.

 (3A) Where:

 (a) a rebatable amount is, or rebatable amounts are, applicable to a taxpayer in respect of a year of income; and

 (b) that rebatable amount, or the aggregate of those rebatable amounts, exceeds $2,000;

the taxpayer is entitled to a rebate of tax in the taxpayer’s assessment in respect of income of that year of income of an amount equal to 20% of the excess.

 (3B) Where the trustee of the estate of a deceased person pays an amount as medical expenses in respect of a liability incurred by the deceased person in the deceased person’s lifetime, being an amount that would have been treated, for the purposes of this section, as a rebatable amount if it had been paid by the deceased person during the deceased person’s lifetime, there shall be allowed, in the assessment of the trustee upon the assessable income derived by the deceased person during the year of income in which the deceased person died, a rebate of tax equal to the rebate that would have been allowable to the deceased person under this section in respect of that amount if it had been paid by the deceased person during the year of income in which the deceased person died.

 (4) In this section:

dependant means:

 (a) the spouse of the taxpayer; or

 (b) a child of the taxpayer less than 21 years of age; or

 (c) a person in respect of whom the taxpayer is entitled to a rebate under section 159J; or

 (ca) a person included in class 1, class 2 or class 6 in the table in subsection 159J(2) or a person who is an invalid relative for the purpose of class 5 in the table in subsection (2) in respect of whom the taxpayer would be entitled to a rebate under section 159J but for subsection 159J(1AB); or

 (d) a person included in class 3 or class 4 in the table in subsection 159J(2) in respect of whom the taxpayer would be entitled to a rebate under section 159J but for subsection 159J(1A).

ineligible medical expenses means payments:

 (a) to a legally qualified medical practitioner, nurse or chemist, or a public or private hospital, in respect of a cosmetic operation that is not a professional service for which a medicare benefit is payable under Part II of the Health Insurance Act 1973; or

 (b) to a legally qualified dentist for:

 (i) dental services; or

 (ii) treatment;

  that is solely cosmetic.

medical expenses means payments:

 (a) to a legally qualified medical practitioner, nurse or chemist, or a public or private hospital, in respect of an illness or operation; or

 (b) to a legally qualified dentist for dental services or treatment or the supply, alteration or repair of artificial teeth; or

 (c) to a person registered under a law of a State or Territory as a dental mechanic in respect of charges lawfully made by that person for the supply, alteration or repair of artificial teeth; or

 (d) for therapeutic treatment administered by direction of a legally qualified medical practitioner; or

 (e) in respect of an artificial limb (or part of a limb), artificial eye or hearing aid; or

 (f) in respect of a medical or surgical appliance (not otherwise specified in this definition) prescribed by a legally qualified medical practitioner; or

 (g) for:

 (i) the testing of eyes or the prescribing of spectacles by a person legally qualified to perform those services; or

 (ii) the supply of spectacles in accordance with any such prescription; or

 (h) as remuneration of a person for services rendered by him or her as an attendant of a person who is blind or permanently confined to a bed or an invalid chair; or

 (i) for the maintenance of a dog used for the guidance or assistance of, but not social therapy for, a person with a disability, being a dog that the Commissioner is satisfied is properly trained in the guidance or assistance of persons with disabilities;

but does not include ineligible medical expenses.

professional service has the meaning given by subsection 3(1) of the Health Insurance Act 1973.

 (5) For the purposes of the definitions of ineligible medical expenses and medical expenses in subsection (4), a payment made to an employer (not being a public or private hospital) of a person (in this subsection referred to as the relevant person) who is a legally qualified medical practitioner, nurse or chemist in respect of the provision of services or treatment, or the supply of goods, by the relevant person shall be taken to be a payment made to the relevant person in respect of the provision of those services or that treatment or in respect of the supply of those goods.

 (6) For the purposes of the definitions of ineligible medical expenses and medical expenses in subsection (4), a payment made to an employer of a legally qualified dentist in respect of the provision of dental services or treatment, or the supply, alteration or repair of artificial teeth, by the dentist shall be taken to be a payment made to the dentist in respect of the provision of those services or that treatment or in respect of the supply, alteration or repair of those artificial teeth.

 (7) For the purposes of paragraph (c) of the definition of medical expenses in subsection (4), a payment made to an employer of a person registered under a law of a State or Territory as a dental mechanic in respect of charges lawfully made by the employer in respect of the supply, alteration or repair of artificial teeth by the dental mechanic shall be taken to be a payment made to the dental mechanic in respect of charges lawfully made by the dental mechanic for the supply, alteration or repair of those artificial teeth.

 (8) A reference in subsection (5), (6) or (7) to an employer of a legally qualified medical practitioner, nurse or chemist, a legally qualified dentist or a person registered under a law of a State or Territory as a dental mechanic shall be read as including a reference to a person with whom the medical practitioner, nurse, chemist, dentist or dental mechanic has entered into a contract for services.

Subdivision ABLump sum payments in arrears

159ZR  Interpretation

 (1) In this Subdivision, unless the contrary intention appears:

accrual year, in relation to the total arrears amount, means a year of income in which any part of the total arrears amount accrued.

annual arrears amount, in relation to an accrual year, means so much of the total arrears amount as accrued in that year.

associate has the same meaning as in section 318.

current year means the year of income for which the rebate is being calculated.

distant accrual year means an accrual year that is not a recent accrual year.

eligible income means:

 (a) salary or wages to the extent to which they accrued during a period ending more than 12 months before the date on which they are paid;

 (b) salary or wages paid to a person after reinstatement to duty following a period of suspension of the person from duty, to the extent to which the salary or wages accrued during the period of suspension;

 (c) a payment covered by section 1280 or 12120 in Schedule 1 to the Taxation Administration Act 1953;

 (d) a Commonwealth education or training payment (see subsection 6(1));

 (e) a payment that is covered by Division 52, 53 or 55 of the Income Tax Assessment Act 1997, but that is not exempt from income tax under that Division;

 (f) a payment under a law of a foreign country that is similar to a payment covered by paragraph (e);

but does not include so much of any such amount as was taken into account in calculating the amount of a tax reimbursement payment by the Commonwealth that was authorised under section 33 of the Financial Management and Accountability Act 1997.

eligible lump sum, in relation to a year of income, means a lump sum payment of eligible income received on or after 1 July 1986 that is included in the assessable income of the year of income and accrued, in whole or in part, in an earlier year or years of income.

gross tax means the tax payable before the allowance of any rebates or credits.

law of a foreign country includes a law of any part of, or place in, a foreign country.

normal taxable income is the amount that would be the taxable income if:

 (a) no amount were included in assessable income under Division 82, section 8310 or 8380 or Division 301 or 302 of the Income Tax Assessment Act 1997 or Division 82 of the Income Tax (Transitional Provisions) Act 1997; and

 (b) the taxable income were reduced by any aboveaverage special professional income included in the taxable income under section 40515 of the Income Tax Assessment Act 1997; and

 (c) no amount were included in assessable income under section 1025 of the Income Tax Assessment Act 1997 (about including net capital gains in assessable income).

notional tax amount has the meaning given by sections 159ZRC and 159ZRD.

rebated tax means the tax payable after the allowance of any tax offset under Division 82, 83, 301 or 302 of the Income Tax Assessment Act 1997, subsection 39235(2) of that Act (which allows some primary producers tax offsets) or Division 82 of the Income Tax (Transitional Provisions) Act 1997, but before the allowance of any other tax offsets or any credits.

rebate year means a year of income for which the conditions in paragraphs 159ZRA(1)(a) and (b) are satisfied.

recent accrual year, in relation to the total arrears amount, means:

 (a) if there are 3 or more accrual years for the total arrears amount—the most recent 2 of those years; or

 (b) in any other case—the accrual year, or each of the accrual years, for the total arrears amount.

salary or wages means payments covered by sections 1235, 1240 (except payments of remuneration to a director of the company who is also an associate of the company), 1245, 1280, 12110, 12115 and 12120 in Schedule 1 to the Taxation Administration Act 1953.

total arrears amount, in relation to a year of income, means the aggregate of the eligible lump sums included in the assessable income of the year of income to the extent to which those eligible lump sums accrued in an earlier year or years of income.

159ZRA  Eligibility for rebate

 (1) Where:

 (a) the assessable income of the taxpayer of a year of income (in this Subdivision called the current year) includes one or more eligible lump sums; and

 (b) the total arrears amount is not less than 10% of the amount (if any) remaining after deducting that total arrears amount from the normal taxable income of the current year;

the taxpayer is entitled to a rebate of tax, in the taxpayer’s assessment for the current year, of the amount (if any) calculated in accordance with this Subdivision.

 (2) The rebate is only available to a natural person (otherwise than in the capacity of a trustee).

159ZRB  Calculation of rebate

The rebate is calculated in accordance with the formula:

Tax on arrears – Notional tax on arrears

where:

Tax on arrears is the amount by which the rebated tax on the taxable income of the current year exceeds the rebated tax on the taxable income of the current year, being that taxable income reduced by the total arrears amount.

Notional tax on arrears is the total of the notional tax amounts for the accrual years.

159ZRC  Notional tax amount for recent accrual years

  The notional tax amount for a recent accrual year is calculated in accordance with the formula:

Tax on increased income – Tax on actual income

where:

Tax on increased income is the rebated tax on the taxable income of the accrual year, being that taxable income adjusted as follows:

 (a) the annual arrears amount for the accrual year is to be added;

 (b) if the accrual year is also a rebate year—the total arrears amount for the accrual year is to be deducted; and

 (c) if, during the accrual year, there accrued an amount that is, or is part of, the total arrears amount for a rebate year before the current year—the amount that so accrued during the accrual year is to be added.

Tax on actual income is the rebated tax on the taxable income of the accrual year, being that taxable income adjusted as follows (if applicable):

 (d) if the accrual year is also a rebate year—the total arrears amount for the accrual year is to be deducted; and

 (e) if, during the accrual year, there accrued an amount that is, or is part of, the total arrears amount for a rebate year before the current year—the amount that so accrued during the accrual year is to be added.

159ZRD  Notional tax amount for distant accrual years

 (1) The notional tax amount for a distant accrual year is calculated in accordance with the formula:

Arrears amount Average tax rate on recent arrears

where:

Arrears amount is the annual arrears amount in relation to the accrual year.

Average tax rate on recent arrears is the average of the rates calculated in accordance with the following formula in respect of each of the recent accrual years:

where:

Increased normal tax is the gross tax on the normal taxable income of the recent accrual year, being that normal taxable income adjusted as follows:

 (a) the annual arrears amount for the recent accrual year is to be added;

 (b) if the recent accrual year is also a rebate year—the total arrears amount for the recent accrual year is to be deducted; and

 (c) if, during the recent accrual year, there accrued an amount that is, or is part of, the total arrears amount for a rebate year before the current year—the amount that so accrued during the recent accrual year is to be added.

Normal tax is the gross tax on the normal taxable income of the recent accrual year, being that normal taxable income adjusted as follows (if applicable):

 (d) if the recent accrual year is also a rebate year—the total arrears amount for the recent accrual year is to be deducted; and

 (e) if, during the recent accrual year, there accrued an amount that is, or is part of, the total arrears amount for a rebate year before the current year—the amount that so accrued during the recent accrual year is to be added.

Arrears amount is the annual arrears amount for the recent accrual year.

 (2) A rate calculated for the purposes of subsection (1) in respect of a recent accrual year shall be calculated as a decimal fraction to 3 decimal places.

 (3) If a rate so calculated would end with a number greater than 4 if it were calculated to 4 decimal places, the rate shall be increased by 0.001.

Subdivision BMiscellaneous

160AAAA  Tax rebate for low income aged persons and pensioners

 (1) Subject to subsection 160AAA(4), a taxpayer who is an individual (other than in the capacity as trustee) is entitled to a rebate of tax in the taxpayer’s assessment in respect of income of a year of income of an amount (if any), ascertained in accordance with the regulations, if the taxpayer satisfies the conditions in subsections (2) and (3).

 (2) The first condition is that:

 (a) on at least one day during the year of income, the taxpayer:

 (i) is eligible for a pension, allowance or benefit under the Veterans’ Entitlements Act 1986 (other than Part VII); and

 (ii) has reached pension age, within the meaning of that Act; and

 (iii) is not in gaol; or

 (b) on at least one day during the year of income, the taxpayer:

 (i) is qualified for an age pension under the Social Security Act 1991; and

 (ii) is not in gaol; or

 (c) the assessable income of the taxpayer of the year of income includes an amount of:

 (i) social security pension or education entry payment (within the meaning of the Social Security Act 1991); or

 (ii) service pension, carer service pension, income support supplement or Defence Force Income Support Allowance (within the meaning of the Veterans’ Entitlements Act 1986) or a DFISAlike payment mentioned in Division 4 of Part VIIAB of that Act;

  and, on at least one day during the year of income, the taxpayer is not in gaol.

 (3) The second condition is that the taxpayer’s rebate income for the year of income is less than an amount ascertained in accordance with the regulations.

 (4) If the taxpayer is the spouse of another person, the amount applicable to the taxpayer under subsection (3) is half of the sum of:

 (a) the taxpayer’s rebate income for the year of income; and

 (b) the taxpayer’s spouse’s rebate income for the year of income (reduced by any amount included in the spouse’s assessable income under section 100); and

 (c) an amount in respect of which a trustee of a trust estate is liable to be assessed (and pay tax) under section 98 in respect of the taxpayer’s spouse.

 (5) Regulations made for the purposes of this section may be expressed to apply in relation to a year of income any part of which occurred before the notification of the regulations.

160AAAB  Tax rebate for low income aged persons and pensioners—trustees assessed under section 98

 (1) Subject to subsection 160AAA(4A), a trustee who is liable to be assessed under section 98 in respect of a beneficiary’s share of the net income of the trust estate is entitled to a rebate of tax in the trustee’s assessment in respect of income of a year of income of an amount (if any), ascertained in accordance with the regulations, if the conditions in subsections (2) and (3) are satisfied.

 (2) The first condition is that:

 (a) on at least one day during the year of income, the beneficiary:

 (i) is eligible for a pension, allowance or benefit under the Veterans’ Entitlements Act 1986 (other than Part VII); and

 (ii) has reached pension age, within the meaning of that Act; and

 (iii) is not in gaol; or

 (b) on at least one day during the year of income, the beneficiary:

 (i) is qualified for an age pension under the Social Security Act 1991; and

 (ii) is not in gaol; or

 (c) the assessable income of the beneficiary of the year of income includes an amount of:

 (i) social security pension or education entry payment (within the meaning of the Social Security Act 1991); or

 (ii) service pension, carer service pension, income support supplement or Defence Force Income Support Allowance (within the meaning of the Veterans’ Entitlements Act 1986) or a DFISAlike payment mentioned in Division 4 of Part VIIAB of that Act;

  and, on at least one day during the year of income, the beneficiary is not in gaol.

 (3) The second condition is that the beneficiary has an amount applicable under subsection (4) or (5) for the year of income less than an amount ascertained in accordance with the regulations.

 (4) If the beneficiary is not the spouse of another person, the amount applicable to the beneficiary under subsection (3) is the amount that would be the beneficiary’s rebate income for the year of income if the beneficiary’s taxable income for that year were the beneficiary’s share of the net income of the trust estate.

 (5) If the beneficiary is the spouse of another person, the amount applicable to the beneficiary under subsection (3) is half the sum of:

 (a) the amount that would be applicable to the beneficiary under subsection (3) if the beneficiary were not the spouse of another person; and

 (b) the beneficiary’s spouse’s rebate income for the year of income (reduced by any amount included in the spouse’s assessable income under section 100); and

 (c) an amount in respect of which a trustee of a trust estate is liable to be assessed (and pay tax) under section 98 in respect of the taxpayer’s spouse.

 (6) Regulations made for the purposes of this section may be expressed to apply in relation to a year of income any part of which occurred before the notification of the regulations.

160AAA  Rebate in respect of certain benefits etc.

 (1) In this section:

rebatable benefit means an amount:

 (a) paid by way of a benefit under Part 2.8A, 2.11, 2.11A, 2.12, 2.12B, 2.14, 2.15, 2.15A or 3.15A of the Social Security Act 1991; or

 (aa) paid by way of parenting payment that is PP (partnered) under the Social Security Act 1991, to the extent that the amount is not exempt under Division 52 of the Income Tax Assessment Act 1997; or

 (b) consisting of a Commonwealth education or training payment (see subsection 6(1)), except where the recipient, or the individual on whose behalf the recipient receives the payment, is an employee of any person who is entitled to a Commonwealth subsidy in respect of the employment; or

 (c) paid as a wage to a participant in a project under the Community Development Employment Projects program from the wages component of a grant made under the program; or

 (d) paid by way of Northern Territory CDEP transition payment under Part 2.27 of the Social Security Act 1991; or

 (da) paid by way of exceptional circumstances relief payment or farm help income support under the Farm Household Support Act 1992; or

 (e) paid by way of income support to farmers and small business owners affected by Cyclone Larry or Cyclone Monica; or

 (f) known as an interim income support payment and paid under section 33 of the Financial Management and Accountability Act 1997; or

 (g) known as the Equine Workers Hardship Wage Supplement Payment.

 (3) Subject to subsections (4) and (4A), where the assessable income of a taxpayer of a year of income includes an amount of rebatable benefit, the taxpayer is entitled in the taxpayer’s assessment in respect of income of the year of income to a rebate of tax of an amount (if any) ascertained in accordance with the regulations.

 (4) Where, apart from this subsection, the taxpayer would be entitled in his or her assessment in respect of income of a year of income to a rebate of tax under both section 160AAAA (Tax rebate for low income aged persons and pensioners) and this section:

 (a) if the amounts of the rebates are the same—the taxpayer is entitled to only one of the rebates; and

 (b) if the amounts of the rebates are not the same—the taxpayer is not entitled to the lesser of the rebates.

 (4A)